Big news out of Prosper today. The class action lawsuit that was brought against Prosper and its directors back in 2008 has been settled. The news was announced in an 8-K just released this morning. The terms of the settlement was $10 million paid in installments over three years. Here is the exact wording from the 8-K.
In exchange for a full release of the Claims as to all class members against all defendants, and subject to Court approval, PMI agreed to pay settlement consideration in the total amount of $10 million according to the following schedule: (i) $2 million within 10 days of entry of an order by the Court granting preliminary approval of the settlement (“Preliminary Approval”); (ii) $2 million on the one-year anniversary of Preliminary Approval; (iii) $3 million on the two-year anniversary of Preliminary Approval; and (iv) $3 million on the three-year anniversary of Preliminary Approval.
While this is a major financial hit to Prosper it is still very good news. They have the cash to easily pay the first installment of this settlement. And it removes all the uncertainty about the suit that has been hanging over Prosper for several years. And if there is one thing investors dislike it is uncertainty.
The claimants were seeking over $47 million so the $10 million settlement is clearly a win for Prosper. In all of my off the record discussions with people over the last two years about this case this $10 million number was at the high end of the expected settlement amount. So, in that way it could be interpreted as a win for the claimants as well.
When the 8-K was filed this morning I reached out to Prosper president Aaron Vermut for an official comment. Here is what he said:
When we [the new management team] came on board with Prosper in January we had several items on our to-do list. One of these was a settlement of the class action lawsuit. Today, we are very pleased to check that item off our list. This settlement serves our members and shareholders and puts this matter to rest. We can now focus all our energy on continuing to grow Prosper and responding to the needs of our investors and borrowers.
I have never written much about this class action lawsuit mainly because no one would ever go on the record for me to give me an official comment. I didn’t want to publish an article that was purely conjecture and I am certainly no legal expert. And the impression I had was that the suit would never materially impact the viability of Prosper as a company. It seems that impression was correct.
If you want to read more about the suit there is a detailed thread on my forum that includes a wide variety of non-legal opinions. The official lawsuit page is here. But as Aaron Vermut said, we can now put this matter behind us. I expect we will see even more rapid growth from Prosper now as investors who have been waiting on the sidelines for this matter to be settled come on board. Onward and upward.
Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.