WASHINGTON DC - A San Francisco-based company agreed to pay a fine of $3 million for miscalculating and materially overstating annualized net returns to retail and other investors.
The U.S. Securities and Exchange Commission imposed the penalty in a settlement with Prosper Funding LLC on Friday.
Prosper, which also has a base in Phoenix, Arizona, is a marketplace lender that, through its website, offers and sells securities linked to the performance of its consumer credit loans which are offered to individuals, and generally are at betwen $2,000 and $40,000. According to the SEC's order, from approximately July 2015 until May 2017, the company excluded certain non-performing charged off loans from its calculation of annualized net returns that it reported to investors.
The order found that, as a result, Prosper reported overstated annualized net returns to more than 30,000 investors on individual account pages on Prosper's website and in emails soliciting additional investments from investors. The SEC says many investors decided to make additional investments based on the overstated annualized net returns. The order also found that Prosper failed to identify and correct the error despite it's 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," Daniel Michael, Chief of the SEC Enforcement Division's Complex Financial Instruments Unit said Friday. "As this case shows, we are committed to holding fintech companies to the same standards applicable to other participants in the securities markets."
Without admitting or denying the findings, Prosper consented to the entry of an SEC order finding that it violated the antifraud provisions. In addition to the penalty, the SEC's order requires Prosper to cease and desist from future violations.
The SEC's investigation was conducted by Jason Casey and Daniel Nigro of the Complex Financial Instruments Unit. Laura Metcalfe supervised the investigation.
Prosper was founded in 2005 and since then claims to have facilitated more than $14 billion in loans to more than 900,000 people.