Silicon Valley Company Settles Fraud Charge for Misstating Returns to Investors

On April 19, 2019, the SEC charged Prosper Funding LLC with miscalculating and materially overstating annualized net returns to retail and other investors. According to the SEC’s order, from approximately July 2015 until May 2017, Prosper excluded certain non-performing charged off loans from its calculation of annualized net returns that it reported to investors. The order finds 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 order also finds that Prosper failed to identify and correct the error despite Prosper’s knowledge that it no longer understood how annualized net returns were calculated and despite investor complaints about the calculation. Without admitting or denying the findings, Prosper consented to the entry of an SEC order finding that it violated the antifraud provision contained in Section 17(a)(2) of the Securities Act of 1933. In addition to a $3 million dollar penalty, the SEC’s order requires Prosper to cease and desist from future violations of Section 17(a) of the Securities Act.