Prosper's SEC Registration Declared Effective

SAN FRANCISCO, July 13, 2009 – Prosper, a leading online destination for borrowing money and investing in personal loans, today announced the successful completion of its registration process with the Securities & Exchange Commission (SEC). As a result, America's largest peer-to-peer (P2P) loans marketplace has resumed for borrowers nationwide and lenders in 14 states with others soon to follow1. Prosper is the first Internet auction-based P2P loans platform to have its registration statement declared effective by the SEC — a move that marks a significant breakthrough for the P2P lending industry.

Prosper's SEC registration statement also covers the first Internet auction-based trading platform (sometimes referred to in financial circles as a "secondary market"), which makes it possible for Prosper lender members to sell their Prosper Notes to other individual and institutional investors. The note trading service is provided by Foliofn Investments, Inc., through their Folio Investing Note Trader platform.2

Prosper first introduced the concept of people-to-people lending in the U.S. when it launched in 2006. The goal was to create a platform where people could invest in each other in a way that was socially and financially rewarding. The concept quickly caught on. From the time Prosper launched up until the time it entered an SEC registration quiet period in October 2008, Prosper had grown to more than 800,000 members and facilitated approximately $180 million in personal loans, making Prosper the largest peer-to-peer loans marketplace in the world.

"With the financial system in crisis, P2P lending — Americans investing in fellow Americans and small businesses — is needed now more than ever," said Chris Larsen, CEO and co-founder of Prosper. "It has been extremely frustrating to be on the sidelines in the teeth of a credit crunch. Nevertheless, we believe that completion of the SEC registration process for our auction-based model — a model that we believe is an extraordinarily powerful tool for fair price discovery for everyone involved in the transaction — is a major watershed for the industry."

A competitive auction marketplace, combined with loan-level transparency and extensive credit and social data, allows Prosper lenders to fine-tune their bidding decisions. Prosper has enhanced its auction model to include a hard bid floor for each listing, which helps lenders appropriately price for risk while investing online. The bid floor for each listing is calculated by adding the national average certificate of deposit rate that matches the term of the borrower loan to the minimum estimated loss rate assigned to each listing.3 For example, an A-rated listing with a minimum estimated loss rate of 2.0% is added to a national average certificate of deposit rate of 2.27%, resulting in a bid floor of 4.27%.

In addition to the new bid floor, more layers of safety and vigilance have been added to the marketplace. Prosper has lowered its minimum bid requirement to $25 (previously $50), which should make it easier for smaller lenders in particular to diversify. Prosper has introduced Prosper Ratings — an improved credit grading system for loan listings — and now requires borrowers to meet the new minimum credit score requirement of 640 (previously 520). Prosper Ratings are based on the historical loan performance of 29,000 Prosper loans and are designed to better convey risk.

Prosper believes the new Prosper Rating system, combined with the new minimum 640 credit score requirement and enhanced auction model, will make analyzing risk simpler and more robust than ever. A review of historical returns since inception based on the improved risk rating and credit segmentation system determined Prosper lenders' return on investment ranges from 7.19% for loans with a AA Prosper Rating to 4.59% for loans with an E Prosper Rating.4

About Prosper
Prosper Marketplace Inc. is a leading online destination for borrowing money and investing in loans. It pioneered direct peer-to-peer loans, which allow people to invest in each other in a way that is socially and financially rewarding. Additionally, Prosper's auction model provides an open and transparent way to borrow or invest in consumer loans on terms that are favorable to everyone involved in the transaction. More than 800,000 people from across the country are part of the Prosper peer-to-peer lending community. Since launching in February 2006, approximately $180 million in loans have been funded in the marketplace.

Prosper was co-founded by Chris Larsen, co-founder of E-LOAN. Backed by Accel Partners, Benchmark Capital, DAG Ventures, Fidelity Ventures, Meritech Capital, and Omidyar Network, Prosper has raised approximately $40 million in venture capital.

About Folio Investing
Folio Investing is an online brokerage that enables investors to manage stocks, ETFs, and mutual funds as integrated investment portfolios ("Folios") that deliver better control, greater transparency, and lower cost. Investors can create their own Folios, much like creating personalized ETFs or mutual funds, or invest in over 100 Ready-to-Go Folios representing market indices, sectors, geographical regions, target dates, and more. The Folio Unlimited Plan features unlimited commission-free trading in twice-daily windows for one low monthly fee. Ready-to-Go Folios can be managed or unmanaged and are offered by FOLIOfn Investments, Inc., a registered broker dealer, and are not registered investment companies. FOLIOfn Investments, Inc. does not provide investment, tax, or legal advice. FOLIOfn Investments, Inc., is a member of FINRA/SIPC. For more information, please visit www.folioinvesting.com
Press Contact: Tiffany Fox Prosper Communications Director 415 593 5416 tiffany@prosper.com

Forward-Looking Statements:
This press release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "would" and similar expressions may identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements may include, among other things expected rates of return and interest rates; the anticipated success and attractiveness of Prosper's lending platform; and the benefits of Prosper's lending platform as compared to other existing alternatives in the marketplace. Although Prosper believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected and the past performance of Prosper loans is no guarantee of future results. For example, Prosper may not actually achieve the plans, intentions or expectations disclosed in forward-looking statements, and you should not place undue reliance on forward-looking statements. Prosper has included important factors in the cautionary statements included in the prospectus, particularly in the "Risk Factors" section, that could cause actual results or events to differ materially from forward-looking statements. Prosper does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

1Prosper is currently available to lenders in California, Colorado, Delaware, Georgia, Illinois, Minnesota, Montana, Nevada, New York, South Carolina, South Dakota, Utah, Wisconsin, and Wyoming. Borrowing is permitted in the District of Columbia and all states except Iowa, Kansas, Maine, and North Dakota.

2Folio Investing is registered trademark of Foliofn, Inc. Securities products and services offered through FOLIOfn Investments, Inc. Member FINRA/SIPC.

3The national average certificate of deposit rate is a proxy for a risk free consumer rate and is published daily by BankRate.com. The national average certificate of deposit rate that matches the term of the borrower loan will be used. For a listing that results in a three year loan the three year national average certificate of deposit rate will be used. The risk free rate will be updated on the third business day of each month based on the certificate of deposit rate published on BankRate.com on the first business day of each month.

4Return on investment as of June 30, 2009. Not FDIC-insured; Investments may lose value; No Prosper or bank guarantee. Prosper Notes are offered by prospectus.

The Economy is Even Worse Than You Think (from WSJ.com)

I read with great interest a recent opinion piece from Mortimer Zuckerman (what a great name) of the US News and World Reports. The title of this piece is "The Economy is Worse Than You Think" and is on WSJ.com if you want to read the whole article.

In a nut shell, he makes a number of important points that are often overlooked by the media and politicians (mainly because the news is NOT good). Here are a couple of excerpts:

"...reasons we are in even more trouble than the 9.5% unemployment rate indicates:

- The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.

- The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).

- The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler, closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance.

Job losses may last well into 2010 to hit an unemployment peak close to 11%. That unemployment rate may be sustained for an extended period."

In summary, the news is not very good. Government, businesses and individuals would be wise to take head of this data and evidence and make any necessary budgetary now. I would like to see the Obama administration start by focusing more attention (and tax dollars) on economic policies rather than healthcare and the environment, among other secondary objectives. While these issues are very important, the success of any reforms in these areas is ONLY possible if we have a strong economy. Thank you, Mr. Zuckerman, for your great analysis.

Porkulous or Stimulus (Update)

Earlier this year (February to be exact), I wrote a piece (check it out here) about the "stimulous" plan that the newly inaugurated Obama administration crammed...er...passed into law. Needless to say, I cast a skeptical eye on the bill as it simply had way too much government waste included in it AND the money did not flow fast enough to give the economy the jolt it desparately needed. It is now becoming even more clear that the Obama administration did not pass the best bill possible as the economy remains in the tank, unemployement continues to increase (and the rate of unemployment is rapidly approaching double digits) and there is some loose talk of yet another "stimulous" plan (seriously, this is no joke)! Check out the recent interview on CNBC with Art Cashin of UBS ("stimulous is part Hoax..." WOW!):

To shed a bit more light on this, Joe Biden recently admitted that he and Obama "mis-read" how bad the economy was (here is one of the many news stories on the topic). It's somewhat laughable that he can suggest this and get away with it! Don't you recall all of the speeches about how this was the worst economy since the Great Depression (hard to say they mis-read it, eh)? Here's one example from a January 2009 speech from Obama (read the entire speech via the link):

"Throughout America’s history, there have been some years that simply rolled into the next without much notice or fanfare. Then there are the years that come along once in a generation – the kind that mark a clean break from a troubled past, and set a new course for our nation. This is one of those years. We start 2009 in the midst of a crisis unlike any we have seen in our lifetime..."

That sounds pretty dire! Well, the economy IS pretty bad (it's at least as bad as the early 80's and maybe worse than that) and I just don't buy that they "mis-read" it when, speech after speech, Obama talked about the "worst economy since the Great Depression." I think it's more likely that Biden and the Obama administration continue to try convince the American people that none of this is their fault even after they've ramped up government spending and passed an enormous spending bill with a "Stimulous" title on it. To be fair, they did inherit a pretty lousy situation and things were clearly getting worse when he took office. But, the American people are tiring of the blame game (Obama's approval rating is down to the low 50% range when it was in the mid to upper 60% range when he took office) and the ineffectual nature of Obama's economic proposals to date (trends in his approval rating prove this out - click here for Rasmussen data).

We were sold this "stimulous" package on the promise that it was necessary to turn things around and that it would bring us out of a tailspin. Unfortunately, it now appears that we were sold a bill of goods (don't say I didn't warn you in the February 2009 blog post).

I sincerely hope that Obama will refocus on what really matters right now (HINT: "IT'S THE ECONOMY, STUPID!!!") and drop plans for massive spending on healthcare and taxes green house gases (aka Cap and Trade). Making the case that we can't fix the economy unless we fix healthcare and the environment just doesn't make any sense. Let's get this economy going BEFORE dealing with these other issues. After all, if the economy (aka current and future tax base) continues to shrink, we definitely won't be able to afford any of these other initiatives.