I don't want this to descend into an anti-Prosper tirade that is commonplace on Prospers.org. I try and look at it objectively. And while I respect the views of ira01 and Xenon481 plus many others with similar views on Prospers.org they cannot be considered objective.
They have their opinion and I have mine. I have not sought independent legal advice on this lawsuit but I have listened to opinions expressed from both inside and outside of Prosper as well as those expressed on Prospers.org.
Please believe me that I am not trying to turn this into an "anti-Prosper tirade" here. I am interested in your opinion, and the basis for it.
While you are correct that I and others on prospers.org are not really "objective" about Prosper, I find it interesting and amusing that you cite "opinions expressed from inside of Prosper" (i.e., its employees, officers and/or directors) as a basis of your opinion that the class action has no merit. You don't think that Prosper insiders are even more lacking in "objectivity" about Prosper and the merits of the class action than I and other burned P1 lenders? I stand to gain little more than "chump change" from a successful class action; but the Prosper insiders stand to lose their jobs (and in the case of the individual defendants, like Chris Larsen, potentially a big chunk of their personal assets). So who lacks objectivity?
And who "outside" of Prosper did you base your opinion regarding the validity (or lack thereof) of the class action on? You don't have to name names, but how about the basis for their opinion? You admit that you didn't seek independent legal advice on this matter. So I'm curious what types of sources you are basing your opinion on, given that the objective facts seem to support the validity of the class action?
Yes, the VC have continued to invest in Prosper, but in my personal opinion, that may have more to do with not wanting to throw in the towel on their already substantial past investments, than any legitimate assessment of the prospects of the class action.
So other than the assertions of highly-self-interested Prosper insiders, and the continued investment of the VC, what else do you base your opinion on? Because here's what's on the other side of the equation:
1) Class counsel obviously believes strongly enough in the merits of the class action to invest millions of dollars of their time (and a non-trivial amount of expenses) on a contingency basis. If Prosper wins, class counsel gets nothing. Lawyers don't like to work for free, so contingency lawyers carefully evaluate their prospects of winning and collecting (and the likely size of their win).
2) The California Court of Appeal rejected the attempt of several individual defendants to get themselves out of this case, finding that the case against them plead in the operative complaint was meritorious.
3) The trial court granted the Plainitffs' motion to certify the case as a class action, over Prosper's objections.
4) The only two lawyers of whom I am aware that regularly participate at prospers.org (regardless of any lack of "objectivity") certainly don't believe that the class action "has very little merit."
5) The class action's main claim is that Prosper violated federal securities laws by unlawfully selling unregistered securities -- the notes that Prosper 1.0 sold to its "lenders," which needed to be registered as securities. Apparently you believe that those notes were not securities, and thus did not have to be registered (since there is no dispute that Prosper sold them to P1 "lenders," and that they were not, in fact, registered). However, the SEC has ALREADY DETERMINED that the notes were indeed securities that needed to be registered, and that Prosper did indeed violate federal securities laws by selling them without registration. Indeed, the SEC ordered Prosper to "cease and desist" such activities immediately, which Prosper did (with a minor and short-lived attempt to circumvent the SEC by briefly re-opening under state law, before realizing the foolishness of that course of action, shutting down again, and repurchasing all P2 notes issued). Needless to say, the SEC is the government agency tasked by Congress with overseeing the federal securities laws, and as such, it is the foremost expert in the reach and application of those laws. So while you believe that the class action has no merit, the SEC has already determined exactly the opposite. Now you are perfectly free to argue that the SEC is wrong, but I hope you can see that you really have to make a persuasive case (which you haven't yet) for deciding that the SEC is wrong and you are right. Have you even read the SEC's cease and desist order to Prosper? You can read the whole thing here -- http://www.sec.gov/litigation/admin/2008/33-8984.pdf
And here is the "good part":
Thus, the Prosper notes are securities under Reves because: (i) Prosper lenders are motivated by an expected return on their funds; (ii) the Prosper loans are offered to the general public; (iii) a reasonable investor would likely expect that the Prosper loans are investments; and (iv) there is no alternate regulatory scheme that reduces the risks to investors presented by the platform.
As a result of the conduct described above, Prosper violated Section 5(a) of the Securities Act, which states that unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell such security through the use or medium of any prospectus or otherwise; or to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for the purpose of sale or for delivery after sale.
Also as a result of the conduct described above, Prosper violated Section 5(c) of the Securities Act, which states that it shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise any security, unless a registration statement has been filed as to such security.