The Class Action lawsuit against Prosper applies to all repackaged loans sold by Prosper to individual "Lenders" (loan purchasers) before the SEC (Federal Government) shut down Prosper's original platform in 2008 for illegally selling unregistered securities.
All decisions by the Court thus far have been in favor of the claimants and against Prosper. All indications point towards there being a very good possibility that the court will decide against Prosper when all is said and done.
If the Class Action lawsuit succeeds against Prosper, the likely result will be that all Lenders from Prosper's original platform will be given the opportunity to force Prosper to repurchase any and all delinquent loans during that time period. This is a total amount of approximately
$46million according to Prosper's own figures.
That is $46million that Prosper does not have. Such a ruling would likely bankrupt Prosper.
As can be seen in Prosper's quarterly SEC regulatory filings:
http://www.sec.gov/Archives/edgar/data/1416265/000141626512000295/p10q3d31d2012.htmProsper only had approximately $15million in venture capital money available to it as of the end of March, 2012 and were losing $1.6million of that every single month.
Prosper has already spent over $2million (and possibly close to $3million) in legal costs trying to defend against the class action lawsuit and have not had a single decision in their favor.
Also, a Prosper bankruptcy isn't the only possible downside to "Lenders" on Prosper's current SEC Registered platform. Prosper's current "Lenders" are lending money to Prosper, not to Prosper's Borrowers. Prosper's "Lenders" are unsecured creditors of Prosper and have no direct relationship with the actual loans to borrowers themselves. The actual loans to the borrowers are assets held solely by Prosper themselves. As such, it is possible (would have to be determined by the courts) and possibly likely that all assets of Prosper (potentially including these loans) would be liquidated as part of a bankruptcy proceeding in order to pay the $46million in restitution to the Class Action lawsuit.
This could potentially cause all of Prosper's current "Lenders" to lose all money that they currently have invested with Prosper.
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