Prosper Funding LLC, a subsidiary of the peer-to-peer lending company – Prosper Marketplace, Inc., as per recent reports, have been penalized by the US Securities & Exchange Commission (SEC) to an amount of $3 million in the penalty for indulging into miscalculation and materially overstating annualized net returns to retail and other investors.
Prosper, a renowned online marketplace lender that deals into the offering and selling of securities linked to the performance of its consumer credit loans. As per the statement by the SEC, from July 2015 until May 2017, the San Francisco-based Prosper knowingly excluded certain non-performing charged off loans from its annualized net returns calculation, thus omitted and misrepresented the facts that it reported to the investors.
The company overstated annualized net returns to more than 30,000 investors on individual account pages on its website and also in emails soliciting additional investments from investors. Based on these actions by Prosper, many investors decided to make additional investments based on the overstated annualized net returns. Further, the statement by the SEC went on saying that Prosper failed to identify and correct this gross error despite its knowledge that it no longer understood how annualized net returns were calculated and despite investor complaints about the calculation.
“For almost two years, Prosper told tens of thousands of investors that their returns were higher than they actually were despite warning signs that should have alerted Prosper that it was miscalculating those returns,” stated Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. “As this case shows, we are committed to holding fintech companies to the same standards applicable to other participants in the securities markets.”
Prosper, which neither admitted nor denied the SEC findings, consented to the entry of an SEC order finding, acknowledging that it violated the antifraud provision contained in Section 17(a)(2) of the Securities Act of 1933. Based on the light of these recent events, the SEC in addition to the penalty also ordered Prosper to cease and desist from future violations of Section 17(a) of the Securities Act.
The SEC assigned Jason Casey and Daniel Nigro of the Complex Financial Instruments Unit, as the investigating officers in this case, which was supervised by Laura Metcalfe.