SEC Issues Cease and Desist Against Prosper for Overstating “Annualized Net Returns”

On April 19, 2019, the Securities and Exchange Commission (the “SEC”) issued a Cease and Desist Order against Prosper Funding, LLC (“Prosper”), for overstating “Annualized Net Returns” to its investors for nearly two years. Prosper is an on-line lender which raises funds by selling securities linked to the performance of consumer loans and related rights.  Prosper reports “annualized net returns” (“ANRs”) to each investor through the investor’s own individual webpage.  During the relevant period, Prosper excluded securities linked to certain charged-off loans, and thus overstated ANRs for most of its investors.  This was apparently done because of a coding error.  Upon learning of the mistake Prosper management quickly took remedial action and told investors, and the SEC gave credit for that.  Prosper was nevertheless fined $3 million.