Prosper fined $1 million; faces class action lawsuit from lenders

Prosper has agreed to pay state regulators $1 million for selling unregistered securities. In October Prosper stopped making loans and last week the SEC filed cease and desist proceedings against the company. According to a press release from North American Securities Administrators Association (NASAA):

"Under terms of the settlement, San Francisco-based Prosper agreed not to offer or sell any securities in any jurisdiction until it is in compliance with that jurisdiction’s securities registration laws. Prosper also agreed to pay a fine totaling $1 million to the states. In consideration of the settlement, the states will terminate their investigation of Prosper’s activities related to the sale of securities before November 24, 2008."

Although Prosper has settled with state regulators, they still face potential legal trouble from lenders. Phillip Kim, an attorney with The Rosen Law Firm posted the following message on

"We are investigating a potential civil securities class action against Prosper on behalf of any person or entity that has lost money in offering loans using the Prosper platform since Prosper's inception in January 2006. Such persons and entities may be able to recover their losses from their loans because the loans may have resulted from unregistered securities."

Based on the legal quandary of p2p lending, Zopa and Loanio have both closed their doors. Lending Club, on the other hand, has registered with the SEC and has seen increased business due to the failure of other platforms and the current economic difficulties.