The Securities and Exchange Commission announced late last week that Prosper, the online lender, has agreed to pay a $3 million fine for misleading retail and other investors via statements it made.
In a press release the SEC said it charged Prosper with “miscalculating and materially overstating annualized net returns to retail and other investors.” The SEC contends that from July of 2015 until May of 2017 it excluded some non-performing charged-off loans from the calculation of its annualized net returns reported to investors. As a result of that move, the SEC said the marketplace lender overstated annualized net returns to more than 30,000 investors. The SEC said Prosper used the figures in its messaging to investors, even prompting some to make additional investments. The government agency also found 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.
“For almost two years, Prosper told tens of thousands of investors that their returns were higher than they actually were despite warning signs that should have alerted Prosper that it was miscalculating those returns,” said Daniel Michael, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, in the press release. “As this case shows, we are committed to holding FinTech companies to the same standards applicable to other participants in the securities markets.” Prosper agreed to pay the fine without admitting or denying the findings, the SEC noted in the press release.
Prosper isn’t the only FinTech to run into trouble with the SEC in recent weeks. Earlier this month the SEC fined Daniel Mattes, founder and CEO of payments company Jumio, $17 million for defrauding investors. The SEC contends Mattes overstates revenue at Jumio in 2013 and 2014 and then sold shares he owned in the private, secondary market.