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PROSPER MARKETPLACE, INC. * * * * * * * * * * * * * * * * * * |
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CONSENT ORDER DOCKET NO. CO-10-7859-S |
I. PRELIMINARY STATEMENT
WHEREAS, the Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the General Statutes of Connecticut, the Connecticut Uniform Securities Act (“Act”), and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies promulgated under the Act (“Regulations”);
WHEREAS, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking (“Department”), conducted an investigation pursuant to Section 36b-26(a) of the Act, as amended by Public Act 10-141, into the activities of Prosper Marketplace, Inc. (“PMI”) to determine whether it had violated, was violating or was about to violate any provisions of the Act or Regulations or any order thereunder (“Investigation”);
WHEREAS, PMI represented that it issues notes in a series, with each series of notes dependent for payment on payments received on a specific borrower loan described in a listing posted on PMI’s peer-to-peer online credit auction platform. All listings on PMI’s platform are posted by individual consumer borrower members of PMI requesting individual consumer loans, which are referred to as “borrower loans”;
WHEREAS, on July 27, 2009, the Commissioner entered a consent order (No. CO-09-7705-S) with respect to PMI (“2009 Consent Order”), pursuant to Section 36b-31 of the Act and Section 4-177(c) of the General Statutes of Connecticut, which 2009 Consent Order is incorporated by reference herein;
WHEREAS, PMI, through its execution of the 2009 Consent Order, voluntarily consented to the Commissioner issuing an order imposing on it, inter alia, the following sanction:
[PMI], its affiliates and successors in interest shall cease and desist from engaging, directly or indirectly, in conduct constituting or which would constitute a violation of the Act or any regulation or order under the Act, including, without limitation, offering or selling securities in this state in contravention of Section 36b-16 of the Act;
WHEREAS, on November 8, 2007, PMI filed an application to register securities by coordination pursuant to Section 36b-17 of the Act. The registration, which was subsequently amended, covered an offering of promissory notes, and was declared effective by the Securities and Exchange Commission on July 10, 2009 (SEC File No. 333-147019). The registration was declared effective by the Commissioner on July 27, 2009;
WHEREAS, Section 36b-19(i) of the Act provides, in pertinent part, that “[e]very registration statement is effective for one year from its effective date, except during the time a stop order is in effect under section 36b-20.” Therefore, the registration declared effective by the Commissioner on July 27, 2009, was effective until July 27, 2010;
WHEREAS, on August 6, 2010, the Commissioner received from PMI an application to renew the registration of PMI notes by coordination pursuant to Section 36b-17 of the Act;
WHEREAS, on August 11, 2010, PMI disclosed in writing to the Division that between July 28, 2010 and August 5, 2010, inclusive, PMI had sold notes to Connecticut residents. In its submission, PMI stated that it had inadvertently allowed the prior Connecticut securities registration to expire;
WHEREAS, on August 12, 2010, PMI disclosed in writing to the Division that from August 6, 2010 to August 12, 2010, PMI had sold notes to Connecticut residents. In its submission, PMI stated that the additional Connecticut sales were based on responses PMI received from states other than Connecticut indicating that its renewal registration would be backdated to the date of receipt;
WHEREAS, subsequent to July 27, 2010, the Division received no written communication from PMI indicating that it had ceased selling securities to Connecticut residents or that it was relying upon any exemption or claim of covered security status under Section 36b-21 of the Act, as amended by Public Act 10-141;
WHEREAS, in effecting the post-July 27, 2010, sales of its securities to Connecticut residents, PMI violated Section 36b-16 of the Act, as amended by Public Act 10-141, and the 2009 Consent Order;
WHEREAS, Section 36b-20(a) of the Act, as amended by Public Act 10-141, authorizes the Commissioner to enter a stop order denying effectiveness to any registration statement if he finds that the order is in the public interest and that any provision of sections 36b-2 to 36b-34, inclusive, or any regulation, order or condition lawfully imposed under said sections has been wilfully violated, in connection with the offering, by the issuer;
WHEREAS, Section 36b-27(a) of the 2010 Supplement to the General Statutes (“2010 Supplement”), as amended by Public Act 10-141, authorizes the Commissioner to order any person who has violated, is violating or is about to violate any provision of the Act or any regulation, rule or order adopted or issued under the Act to cease and desist from such violation;
WHEREAS, Section 36b-27(d) of the 2010 Supplement, as amended by Public Act 10-141, authorizes the Commissioner to impose a fine not exceeding One Hundred Thousand Dollars ($100,000) per violation against any person who has violated any provision of the Act or any regulation, rule or order adopted or issued under the Act;
WHEREAS, Section 36b-31(a) of the Act, as amended by Public Act 10-141, provides, in pertinent part, that “[t]he commissioner may from time to time make . . . such . . . orders as are necessary to carry out the provisions of sections 36b-2 to 36b-34, inclusive”;
WHEREAS, Section 36b-31(b) of the Act, as amended by Public Act 10-141, provides, in pertinent part, that “[n]o . . . order may be made . . . unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of sections 36b-2 to 36b-34, inclusive”;
WHEREAS, an administrative proceeding initiated under Section 36b-20 of the Act, as amended, and Section 36b-27 of the 2010 Supplement, as amended, would constitute a “contested case” within the meaning of Section 4-166(2) of the General Statutes of Connecticut;
WHEREAS, Section 4-177(c) of the General Statutes of Connecticut and Section 36a-1-55(a) of the Regulations of Connecticut State Agencies provide that a contested case may be resolved by consent order, unless precluded by law;
WHEREAS, PMI and the Commissioner now desire to resolve the matters alleged above without the need for further administrative proceedings;
AND WHEREAS, PMI agrees to the language in this Consent Order.
II. CONSENT TO WAIVER OF PROCEDURAL RIGHTS
WHEREAS, PMI, through its execution of this Consent Order, voluntarily waives the following rights:
| 1. | To be afforded notice and an opportunity for a hearing within the meaning of Section 36b-20(c) of the Act, Section 36b-27(a) of the 2010 Supplement, as amended, Section 36b-27(d)(2) of the 2010 Supplement, as amended, and Section 4-177(a) of the General Statutes of Connecticut; |
| 2. | To present evidence and argument and to otherwise avail itself of Section 36b-20(c) of the Act, Section 36b-27(a) of the 2010 Supplement, as amended, Section 36b-27(d)(2) of the 2010 Supplement, as amended, and Section 4-177c(a) of the General Statutes of Connecticut; |
| 3. | To present its position in a hearing in which it is represented by counsel; |
| 4. | To have a written record of the hearing made and a written decision issued by a hearing officer; and |
| 5. | To seek judicial review of, or otherwise challenge or contest the matters described herein, including the validity of this Consent Order. |
III. ACKNOWLEDGEMENT OF THE COMMISSIONER'S ALLEGATIONS
WHEREAS, PMI, through its execution of this Consent Order, acknowledges the following allegations of the Commissioner, without admitting or denying them, yet admits sufficient evidence exists for the Commissioner to enter a stop order denying effectiveness to its pending securities registration, an order to cease and desist and an order imposing an administrative fine against it:
| 1. | The entry of this Consent Order is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of the Act; and |
| 2. | From at least July 28, 2010, forward, PMI sold unregistered securities in violation of Section 36b-16 of the Act, as amended, and the 2009 Consent Order, which forms a basis for the entry of a stop order denying effectiveness to PMI’s securities registration pursuant to Section 36b-20(a) of the Act, as amended, an order to cease and desist against PMI pursuant to Section 36b-27(a) of the 2010 Supplement, as amended, and the imposition of a fine against PMI pursuant to Section 36b-27(d) of the 2010 Supplement, as amended. |
WHEREAS, the Commissioner would have the authority to enter findings of fact and conclusions of law after granting PMI an opportunity for a hearing;
AND WHEREAS, PMI through its execution of this Consent Order, represents to, and specifically assures the Commissioner that none of the violations alleged in the 2009 Consent Order or this Consent Order shall occur in the future.
IV. CONSENT TO ENTRY OF SANCTIONS
WHEREAS, PMI, through its execution of this Consent Order, consents to the Commissioner’s entry of a Consent Order imposing on it the following sanctions:
| 1. | PMI shall cease and desist from engaging in conduct constituting or which would constitute a violation of the Act or any regulation, rule or order adopted or issued under the Act, including but not limited to, offering and selling securities in violation of Section 36b-16 of the Act, as amended, and the 2009 Consent Order; |
| 2. | No later than the date this Consent Order is issued by the Commissioner, PMI shall remit to the Department, by cashier’s check, certified check or money order made payable to “Treasurer, State of Connecticut”, the sum of Five Thousand Dollars ($5,000) as an administrative fine; |
| 3. | PMI its affiliates and successors in interest shall retain Connecticut legal counsel sufficiently experienced in state and federal securities law compliance and not unacceptable to the Division Director to evaluate PMI’s compliance with the Act or any regulation, rule or order adopted or issued under the Act. The scope of legal review contemplated by this paragraph shall include, without limitation, securities registration and disclosure obligations as well as registration requirements for any individual or entity, regardless of title or designation, performing securities-related services on behalf of PMI, its affiliates or successors in interest. PMI shall identify such Connecticut legal counsel in writing to the Division Director prior to the Commissioner’s entry of this Consent Order; |
| 4. | For three years from the date this Consent Order is entered by the Commissioner, PMI, its affiliates and successors in interest shall consult with such Connecticut legal counsel at least once each calendar year, provided nothing herein shall preclude more frequent consultations should the need arise; |
| 5. | By December 31st of each year to which the obligations described in paragraphs 3 and 4 of Section IV of this Consent Order extend, PMI shall file with the Division Director an annual sworn affidavit verifying that it has fully discussed its Connecticut compliance responsibilities with Connecticut legal counsel and that, in connection therewith, PMI, its affiliates and successors in interest are complying with the Act, the Regulations, this Consent Order and with the advice of counsel. The first affidavit shall be filed no later than December 31, 2010, the second affidavit shall be filed no later than December 31, 2011, and the final affidavit shall be filed no later than December 31, 2012; and |
| 6. | Should PMI, its affiliates or successors in interest sever their relationship with the Connecticut legal counsel identified to the Division Director, PMI, its affiliates or successors in interest shall apprise the Division Director in writing of the reasons for such severance within thirty (30) days following such severance, and shall identify the successor attorney engaged to perform the services described in paragraphs 3 and 4 of Section IV of this Consent Order. |
V. CONSENT ORDER
NOW THEREFORE,
the Commissioner enters the following:| 1. | The Sanctions set forth above be and are hereby entered; |
| 2. | Entry of this Consent Order by the Commissioner is without prejudice to the right of the Commissioner to take enforcement action against PMI based upon a violation of this Consent Order or the matters underlying its entry, if the Commissioner determines that compliance with the terms herein is not being observed or if any representations made by PMI and reflected herein are subsequently discovered to be untrue; |
| 3. | Contemporaneously with the Commissioner’s entry of this Consent Order, the 2010 securities registration of PMI shall be made effective under the Act; |
| 4. | In the event that PMI fails to abide by the terms and conditions of this Consent Order, PMI consents to the immediate entry of a stop order and/or the imposition of a One Hundred Thousand Dollar ($100,000) fine, knowingly, wilfully and voluntarily waiving its right to notice and an administrative hearing in conjunction therewith; provided that, prior to invoking this paragraph, the Commissioner shall provide PMI with an informal opportunity to demonstrate its compliance with this Consent Order; and |
| 5. | This Consent Order shall become final when issued. |
| Issued at Hartford, Connecticut, | _______/s/_________ | |
| this 13th day of October 2010. | Howard F. Pitkin | |
| Banking Commissioner |
CONSENT TO ENTRY OF ORDER
I, Sachin Adarkar, state on behalf of Prosper Marketplace, Inc., that I have read the foregoing Consent Order; that I know and fully understand its contents; that I am authorized to execute this Consent Order on behalf of Prosper Marketplace, Inc.; that Prosper Marketplace, Inc., agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Prosper Marketplace, Inc., consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein.
| By: | __________/s/__________________ |
| Name: Sachin Adarkar | |
| Title: General Counsel and Secretary | |
| Prosper Marketplace, Inc. |
State of: California
County of: San Francisco
On this the 8 day of October 2010, before me, Michelle Donnelly, Notary Public, the undersigned officer, personally appeared Sachin Adarkar, who acknowledged himself to be the General Counsel and Secretary of Prosper Marketplace, Inc., a corporation, and that he, as such General Counsel and Secretary, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as General Counsel and Secretary.
In witness whereof I hereunto set my hand.
_____________/s/_________________________
Notary Public/Commissioner of the Superior Court
Date Commission Expires: February 6, 2012