A Silicon Valley-based marketplace lender agreed to settle SEC charges for having "miscalculated and materially overstated" annualized net returns to investors.
Prosper Funding LLC ("Prosper") is a marketplace lender that (i) provides unsecured consumer loans to borrowers and (ii) issues securities that include notes connected to the performance of the consumer loans ("Prosper Securities"). According to the SEC Order, Prosper excluded from its return performance to investors on certain Prosper Securities connected to certain "charged-off consumer loans" that had been resold in the secondary market. This exclusion was due to a deficiency in the computer code used by Prosper to calculate its returns. The SEC claimed that Prosper neglected to correct the error, notwithstanding that its employees did not comprehend how the code underlying the annualized net returns calculation functioned and investors complaints. The SEC Order stated that as a result, Prosper miscalculated and overstated the annualized net returns to over 30,000 investors on their online account pages and in correspondence concerning investments in Prosper securities.
Without admitting or denying the charges, Prosper agreed to pay a $3 million penalty.
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