~~Lender members access our platform and, by~~Borrower Loans. If at the end of the bidding onperiod the listing has received bids equal to or exceeding the minimum amount required to fund, a loan will be made to the applicant in an amount equal to the total amount of all winning bids. All borrower loans are unsecured obligations of individual borrower members with a fixed interest rate set by PMI and a loan term currently set at one, three or five years, although Prosper Funding may expand the range of available loan terms in the future to between three months and seven years. The minimum and maximum principal amounts for borrower loans are currently $2,000 and $25,000, respectively. All borrower loans are funded by WebBank, a Federal Deposit Insurance Corporation (“FDIC”) insured, Utah-chartered industrial bank. After funding a loan, WebBank sells and assigns the loan to Prosper Funding, without recourse to WebBank, in exchange for the principal amount of the borrower loan. WebBank has no obligation to Note holders.

For all borrower loans, PMI verifies the applicant’s identity against data from consumer reporting agencies and other identity and anti-fraud verification databases. Loan listings can be posted without PMI obtaining any documentation of the applicant’s ability to afford the loan. In some instances, PMI verifies the income or employment information provided by applicants in listings. This verification is normally done after the listing ~~make purchase~~has been created but before the loan is funded, and therefore the results of the verification process are not reflected in the loan listings. If it is unable to verify material information with respect to an applicant or listing, PMI will cancel or refuse to post the listing or cancel any or all commitments against the listing. PMI may also delay funding of a borrower loan in order to verify the accuracy of information provided by an applicant in connection with the listing, or to determine whether there are any irregularities with respect to the listing. If PMI identifies material misstatements or inaccuracies in the listing or in other information provided by the applicant, it will cancel the listing or related loan. See “About the Platform—Borrower Identity and Financial Information Verification.”

The Notes. Prosper Funding issues and sells a series of Notes for each borrower loan that is funded on the platform. The Notes ~~that~~ are sold to the lender members who successfully bid on the corresponding loan listing in the principal amounts of their respective bids. Each series of Notes is dependent for payment on payments ~~we receive~~Prosper Funding receives on the corresponding borrower ~~loan for that listing. By making a bid on a listing, a lender member is committing to purchase from~~loan. Prosper a Note in the principal amount of the lender’s winning bid. The lender members who purchase the Notes will designate that the sale proceeds be applied to facilitate the funding of the corresponding borrower loan. The Notes will be special, limited obligations of Prosper only and not obligations of any borrower.

~~The Notes are unsecured and holders of the Notes do not have a security interest in the corresponding borrower loans or~~Funding uses the proceeds of ~~those corresponding borrower loans. If Prosper were~~each series of Notes to ~~become subject to a bankruptcy or similar proceeding, the holder of a Note would generally have a general unsecured claim against Prosper~~purchase that may or may not be limited in recovery to such borrower payments. To limit the risk of Prosper’s insolvency, Prosper has granted the trustee under the indenture for the Notes, referred to as the “indenture trustee,” a security interest in Prosper’s right to payment under, and all proceeds received by Prosper on, the corresponding borrower loans and in the bank account in which the borrower loan payments are deposited. The indenture trustee may exercise its legal rights to the collateral only if an event of default has occurred under the indenture, which would include Prosper becoming subject to a bankruptcy or similar proceeding. See “Risk Factors—Risks Related to Prosper, Our Platform and Our Ability to Service the Notes.”from WebBank.

Prosper Funding will pay each Note holder principal and interest on ~~each series of Notes~~the Note in an amount equal to each such Note’spro rata portion of the principal and interest payments, if any, Prosper Funding receives on the corresponding borrower loan, net of ~~Prosper’s~~Prosper Funding’s servicing fee, which is currently set at 1%, per annum of the outstanding principal balance of the corresponding loan prior to applying the current payment, but which Prosper Funding may ~~extend~~increase in the future to ~~between~~an amount that is greater than 1% but less than or equal to 3% per annum. Any change to Prosper Funding’s servicing fee will only apply to Notes offered and ~~3%.~~sold after the date of the change. Prosper Funding will pay ~~lender members~~Note holders any other amounts ~~Prosper~~it receives on ~~each~~the corresponding borrower ~~loan,~~loans, including late fees and prepayments, subject to ~~the~~its servicing fee, except that ~~Prosper~~it will not pay ~~to lender members~~Note holders any non-sufficient funds fees for failed borrower payments orthat it receives. In addition, the funds available for payment on the Notes will be reduced by the amount of any collection fees ~~we or~~ a third-party collection agency ~~charge.~~charges for services rendered in connection with the corresponding borrower loan. Notwithstanding the foregoing, no payments will be made on any Note after its final maturity date. See “The Offering—Final maturity date/Extension of maturity date.”

Under ~~the~~Prosper Funding’s lender member registration agreement, in the event of a material default under a series of Notes due to verifiable identity theft of the named borrower’s identity, Prosper Funding will repurchase ~~the~~such Notes from the relevant lender members or indemnify such lender members. In the event ~~we breach~~that a lender member (i) either (a) purchases a Note from Prosper Funding due to an error in an automated bidding tool or order execution service offerred by Prosper Funding or (b) receives a Note from Prosper Funding that is not in the principal amount of the bid such lender member placed or does not correspond to the borrower loan on which such lender member bid, and (ii) the Note sold to such lender member by Prosper Funding is materially different from the Note that would have been sold to such lender member had such error not occurred or the lender member would not have purchased the Note at all absent such error, Prosper Funding will either indemnify the lender member, repurchase the Note or cure the breach. In the event Prosper Funding breaches any of ~~our~~its other representations and warranties in the lender registration agreement pertaining to the Notes, and such breach materially and adversely affects a series of Notes, weProsper Funding will either indemnify the lender members who purchase such Notes from Prosper Funding, repurchase that series of Notes from such lender members or cure the breach. If Prosper Funding repurchases any Notes, PMI will concurrently repurchase the related PMI Management Contract for zero consideration. See “About ~~Prosper.~~the Platform—Note Repurchase and Indemnification Obligations.”

~~Borrower Loans.~~ Our platform allows our borrower members to request loans by posting listings on the platform indicating a requested loan amount. All borrower loans are unsecured obligations of individual borrower members with a fixed interest rate set by Prosper and a loan term currently set at one, three or five years, which Prosper may extend in the future to between three months to seven years. The minimum and maximum principal amounts for borrower loans are currently $2,000 and $25,000, respectively, but in the future Prosper may permit borrowers to request loans in principal amounts between $500 and $35,000. Lender members may access our platform and bid by indicating that they are willing to purchase Notes relating to the borrower loan in the principal amounts of their respective bids. If at the end of the bidding period the listing has received bids equal to or exceeding the minimum amount required for the loan to fund, a loan will be made to the borrower in an amount equal to the total amount of all winning bids, at the interest rate set by Prosper.

All borrower loans will be funded by WebBank, a Federal Deposit Insurance Corporation (“FDIC”) insured, Utah-chartered industrial bank. After funding a loan, WebBank sells and assigns the loan to Prosper, without recourse to WebBank, in exchange for the principal amount of the borrower loan. WebBank has no obligation to purchasers of the Notes. For all borrower loans, Prosper verifies the borrower member’s identity against data from consumer reporting agencies and other identity and anti-fraud verification databases. Borrower listings are posted without our obtaining any documentation of the borrower’s ability to afford the loan. In limited instances, we verify the income, employment, occupation or other information provided by Prosper borrower members in listings. This verification is normally done after the listing has been created and bidding is substantially complete, but before the loan is funded, and therefore the results of our verification are not reflected in the borrower listings.

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PMI Management Contracts. PMI may be deemed to be the issuer of an investment contract in connection with its provision of administrative services to Prosper Funding. Pursuant to the Administration Agreement, PMI will provide three kinds of services to Prosper Funding: (i) PMI will manage the operation of the platform itself (credit policy revisions, systems maintenance, etc.) (the “Loan Platform Administration Services”); (ii) PMI will provide back-office services to Prosper Funding (maintaining books and records, making periodic regulatory filings, performing limited cash management functions, etc.) (the “Corporate Administration Services”); and (iii) PMI will service the loans and notes originated through the platform (the “Loan and Note Servicing Services”).

The PMI Management Contracts will be attached to the Notes and relate solely to the services provided by PMI to Prosper Funding pursuant to the Administration Agreement. They will not be separable from the Notes and will not be assigned a value separate from the Notes.

~~Borrower~~Servicing and Loan Platform Administration. Prosper Funding is responsible for servicing the borrower loans ~~will be serviced by Prosper.~~and Notes. Following its purchase of borrower loans and sale of Notes corresponding to the borrower loans, Prosper ~~refers~~Funding begins servicing the borrower loans and Notes. Borrower loans that become more than 30 days past-due are referred to a third party collection agency for ~~collection proceedings. For loans that were originated between November 2005~~collection. See “About the Platform – Loan Servicing and ~~July 12, 2009, as of December 31, 2011, 11,826 loans or 41% of all~~Collection.”

Prosper Funding expects to enter into an Administration Agreement with PMI, pursuant to which Prosper Funding has engaged PMI to assist it in servicing the borrower loans, ~~ever funded have been referred~~managing the platform, and in performing other duties. Pursuant to the Administration Agreement, PMI will provide a ~~collection agency for collection proceedings,~~variety of administrative and 43% have been greater than 30 days past due at any time; 40% have been greater than 60 days past due at any time. For loans that were originated between July 13, 2009 and December 31, 2011, as of December 31, 2011, 1,461 loans or 8% of all borrower loans ever funded have been referredmanagement services, including, but not limited to, ~~a collection agency for collection proceedings and 7% have been greater than 30 days past due at any time; 6% have been greater than 60 past due at any time.~~ supervision of:

the management, maintenance and operation of the platform;

the issuance, sale and payment of the Notes;

Prosper Funding’s purchase of borrower loans;

the operation of www.prosper.com;

Prosper Funding’s compliance with applicable federal and state laws (including consumer protection laws, state lender licensing requirements and securities registration requirements);

the applicant verification and eligibility processes;

the posting of listings on the platform; and

the assignment of a Prosper Rating and an interest rate to each listing.

See “About ~~Prosper.~~the Platform,” “Summary of Indenture, Form of Notes and Administration Agreement—Administration Agreement” and “Information About Prosper Marketplace, Inc.” for more information.

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Quick Invest. ~~Our~~The platform includes a loan search tool, Quick Invest, ~~allows~~that makes it easier for lender members to identify Notes that meet their investment criteria. A lender member using Quick Invest is asked to indicate (i) the Prosper Rating or Ratings she wishes to use as search criteria, (ii) the total amount she wishes to invest and (iii) the amount she wishes to invest per Note. If she wishes to search for Notes using criteria other than, or in addition to, Prosper Rating, she can use one or more of several dozen additional search criteria, such as loan amount, debt-to-income ratio and credit score. The only criteria a lender member cannot specify in Quick Invest are the listing description and the monthly payment amount. Quick Invest then compiles a basket of Notes for her consideration that meet her search criteria. If the pool of Notes that meet her criteria exceeds the total amount she wishes to invest, Quick Invest selects Notes from the pool based on how far the listings corresponding to the Notes have progressed through ~~our~~the loan verification process,i.e., Notes from the pool that correspond to listings for which ~~we have~~PMI has completed ~~our loan~~the verification process will be selected first. If the pool of Notes that meet the lender member’s specified criteria and for which ~~we have~~PMI has completed ~~loan~~ verification still exceeds the amount she wishes to invest, Quick Invest selects Notes from that pool based on the principle of first in, first out,i.e., the Notes from the pool with the corresponding listings that were posted ~~on our website~~ earliest will be selected first. If the pool of Notes that meet the lender member’s criteria exceeds the amount she wishes to invest, but the subset of that pool for which PMI has completed loan verification does not equal the amount she wishes to invest, Quick Invest selects all of the Notes that correspond to listings for which PMI has completed loan verification and makes up the difference by selecting Notes from the remaining pool on a first in, first out basis. If the lender member’s search criteria include multiple Prosper Ratings, Quick Invest divides the lender’s basket into equal portions, one portion representing each Prosper Rating selected. To the extent available Notes with these Prosper Ratings are insufficient to fill the ~~lender’s~~lender member’s order, the lender member is advised of this shortfall and given an opportunity either to reduce the size of her order or to modify her search criteria to make her search more expansive. ~~Our~~The Auto Quick Invest feature allows lender members (i) to have Quick Invest searches run on their designated criteria automatically each time new listings are posted on ~~our~~the platform, and (ii) to ~~place~~have bids placed automatically on any Notes identified by each such search. See “About ~~Prosper.~~the Platform—How to Bid to Purchase Notes—Quick Invest.”

~~Prosper Funding LLC.~~ ~~On February 17, 2012, the Company formed Prosper Funding LLC, a Delaware limited liability company (“PFL”). The Company is the sole member of PFL. PFL has been organized~~PMI’s historical financial results and will be operated in a manner that is intended to minimize the likelihood that it will (i) become subject to bankruptcy proceedings or (ii) be substantively consolidated with the Company, and thus have its assets subject to claims by the Company’s creditors, in the event the Company becomes subject to a bankruptcy proceeding. The Company intends to restructure its platform so borrower loans are held by PFL and PFL issues and sells the borrower payment dependent notes tied to the loans. On March 7, 2012, PFL filed a registration statement on Form S-1 with the SEC for a continuous offering and sale of such notes. After PFL’s registration statement is declared effective, but before PFL commences offering notes pursuant to such registration statement, the Company intends for PFL to assume all outstanding Notes issued by the Company~~. PFL has not commenced operations as~~much of the ~~date~~discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” reflects the structure of the lending platform and PMI’s operations prior to July 13, 2009. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in PMI’s Annual Report for the fiscal year ended December 31, 2011, pages 73-83, which is incorporated by reference in this prospectus.

Corporate Information

~~We were~~Prosper Marketplace, Inc. PMI was incorporated in the State of Delaware in March ~~2005, and our~~2005. Its principal executive offices are located at 111 Sutter Street, 22nd Floor, San Francisco, California 94104. ~~Prosper’s~~Its telephone number at this location is (415) 593-5400. ~~Prosper’s~~

Prosper Funding LLC. PMI formed Prosper Funding LLC in the State of Delaware in February 2012. Prosper Funding’s principal executive offices are located at 111 Sutter Street, 22nd Floor, San Francisco, California 94104. Its telephone number at this location is (415) 593-5400. Its website address is www.prosper.com.The information contained on ~~our~~its website is not incorporated by reference into this prospectus.

~~From~~Prosper Funding has been organized and will be operated in a manner that is intended (i) to minimize the launch of our platform in February of 2006 until October 16, 2008, the operation of our platform differed from the structure described in this prospectus and we did not offer Notes. Instead, our platform allowed lender members to purchase, and take assignment of, borrower loans directly. Underlikelihood that structure the borrower loans were evidenced by individual promissory notes in the amount of each lender member’s winning bid, which notes were thereafter sold and assigned to each lender member with a winning bid,it will become subject to ~~our right~~bankruptcy proceedings, and (ii) to ~~service~~minimize the ~~borrower loans. In addition, we previously assigned one of seven letter credit grades based~~likelihood that it would be substantively consolidated with PMI, and thus have its assets subject to claims by PMI’s creditors, if PMI files for bankruptcy. This is achieved by placing certain restrictions on ~~the borrower’s credit score~~Prosper Funding’s activities, including its transactions with PMI, and ~~displayed the borrower’s credit grade in the listing posted on our platform. Commencing July 13, 2009, each listing was assigned~~implementing certain formalities designed to expressly reinforce Prosper Funding’s status as a distinct corporate entity from PMI. See “Information About Prosper Rating, which is derived from two scores: a consumer reporting agency score and an in-house custom score calculated using the historical performance of previous borrower loans with similar characteristics.Funding LLC.”

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THE OFFERING

From October 16, 2008 until July 13, 2009 except for a brief period between April 28, 2009 and May 8, 2009 during which our wholly owned subsidiary Prosper Loans Marketplace, Inc. conducted an intrastate offering under Section 3(a)(11) of the Securities Act to California residents only and no securities were issued, we did not offer lender members the opportunity to make any purchases on our platform. During this time, we also did not accept new lender registrations or allow new loan purchase commitments from existing lender members. We continued to service all borrower loans originated on the platform on or before October 16, 2008, and lender members were able to access their accounts, monitor their borrower loans and withdraw available funds without charge. We also limited the borrowing side of our platform during this period. Borrowers could still request loans, but those loan requests were forwarded to companies that had a pre-existing relationship with Prosper that could make or facilitate a loan to the borrower.

Our historical financial results and much of the discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” reflects the structure of our lending platform and our operations prior to July 13, 2009. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the fiscal year ended December 31, 2011, pages 73-83, which is incorporated by reference in this prospectus.

~~THE~~ ~~OFFERING~~Borrower Payment Dependent Notes

Issuer		Prosper ~~Marketplace, Inc.~~Funding LLC

Securities offered		~~Prosper~~ Borrower Payment Dependent Notes, or “Notes,” issued in series, with each series dependent for payment on payments Prosper Funding receives on a specific borrower loan.

Offering price		100% of the principal amount of each Note.

Initial maturity date		Maturities are for one, three or five years and match the maturity date of the corresponding borrower loan. Prosper Funding may in the future extend the range of available loan terms to between three months toand seven years, at which time the Notes will have terms between three months and seven years.

Final maturity date/Extension of maturity date		The final maturity date of each Note is the date that is one year after the initial maturity date. Each Note will mature on the initial maturity date, unless any principal or interest payments in respect of the corresponding borrower loan remain due and payable to Prosper Funding upon the initial maturity date, in which case the maturity of the Note will be automatically extended to the final maturity date. If there are any amounts under the corresponding borrower loan still due and owing to usProsper Funding after the final maturity date, weProsper Funding will have no further obligation to make payments on the Notes ~~of the series~~ even if ~~we receive~~it receives payments on the corresponding borrower loan after the final maturity date. However, because we may, in our sole discretion and subject to our servicing standard, amend, modify, sell to a third-party debt purchaser or charge-off the borrower loan at any time after the 31st day of its delinquency, and because we generally charge-off a loan after it becomes more than 120 days past due, a borrower loan may never reach the final maturity date.

Interest rate		Each series of Notes will have a stated, fixed interest rate equal to ~~its~~the loan yield percentage specified in the related loan listing as determined by Prosper Funding, which is the interest rate for the corresponding borrower loan, net of servicing fees.

Setting interest rate for Notes		Interest rates vary among the Notes, but each series of Notes that corresponds to a single borrower loan will have the same interest rate. ~~Prosper~~PMI sets the interest rates for borrower loans based on their Prosper Ratings, as well as additional factors such as ~~estimated loss rates,~~ loan terms, group affiliations, the economic environment and competitive conditions. The interest rate on each Note is equal to the interest rate on the corresponding borrower loan, net of servicing fees. See “About ~~Prosper.~~the Platform—Setting Interest Rates.”

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Payments on the Notes		WeProsper Funding will pay principal and interest on any Note a lender member purchases in an amount equal to the lender member’spro rata portion of the principal and interest payments, if any, ~~we receive~~Prosper Funding receives on the corresponding borrower loan, net of servicing fees and other charges. See “—“The Offering—Servicing Fees and Other Charges.” Each Note will provide for monthly payments over a term equal to the corresponding borrower loan. The payment dates for the Notes will fall on the sixth business day after the due date for each installment of principal and interest on the corresponding borrower ~~loan.~~loan, although interest will be deemed to accrue thereon only through each corresponding loan payment date. See “Summary of ~~Material Agreements—~~Indenture, asForm of Notes and Administration Agreement—Indenture and Form of Notes” for more information.

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Borrower loans		Lender members will designate Prosper Funding to apply the proceeds from the sale of each series of Notes to ~~Prosper’s~~the purchase of the corresponding borrower loan from WebBank. Each borrower loan is a fully amortizing consumer loan made by WebBank to an individual ~~Prosper~~ borrower member. Borrower loans currently have a term of one, three or five years, but Prosper Funding may in the future extend the range of available loan terms to between three months toand seven years. Borrower members may request loans within specified minimum and maximum principal amounts (currently between $2,000 and ~~$25,000, but which may increase to between $500 and $35,000)~~$25,000), which are subject to change from time to time. WebBank subsequently sells and assigns the borrower ~~loan~~loans to Prosper Funding without recourse ~~to WebBank~~ in exchange for the principal amount of the borrower loan. Borrower loans ~~are repayable in~~provide for monthly ~~installments~~payments over the term equal thereof and are unsecured and unsubordinated. Borrower loans may be repaid at any time by ~~Prosper borrower members~~the borrowers without prepayment penalty. ~~Prosper~~PMI verifies ~~the borrower member’s~~each applicant’s identity against data from consumer reporting agencies and other identity and anti-fraud verification databases. ~~Borrower~~Loan listings ~~are~~can be posted without ~~our~~PMI obtaining any documentation of the ~~borrower member’s~~applicant’s ability to afford the loan. ~~In limited instances, we verify~~PMI sometimes verifies the income ~~employment, occupation~~ or ~~other~~employment information provided by ~~Prosper borrower members in listings.~~applicants. This verification is normally done after the listing has been created ~~and bidding is substantially completed,~~ but before the loan has funded, and therefore the results of ~~our~~the verification are not reflected in the listings. ~~Prosper is responsible for servicing the borrower loans.~~ See “About ~~Prosper”~~the Platform—Borrower Identity and Financial Information Verification” for more information. Borrower members are able to use the loan proceeds for any purpose other than (i) buying, carrying or trading in securities or buying or carrying any part of an investment contract security or (ii) paying for postsecondary educational expenses (i.e., tuition, fees, required equipment or supplies, or room and board) at a college/university/vocational school, as the term “postsecondary educational expenses is defined in Bureau of Consumer Finance Protection Regulation Z, 12 C.F.R. § 1026.46(b)(3), and they warrant and represent that they will not use the proceeds for any such ~~purpose.~~purposes.

Security ~~Interest—Ranking~~interest—ranking		The Notes will not be contractually senior or contractually subordinated to ~~any~~ other indebtedness, ~~of Prosper.~~if any, that Prosper Funding incurs. All Notes will be ~~unsecured~~ special, limited obligations of ~~Prosper. The~~Prosper Funding. Prosper Funding was formed by PMI so that, in the event of PMI’s bankruptcy, the borrower loans Prosper Funding owns should be shielded from claims by PMI’s creditors, thereby protecting the interests of Note holders in those borrower loans and the proceeds thereof. This is achieved by placing certain restrictions on Prosper Funding’s activities, including restrictions in Prosper Funding’s organizational documents on its ability to incur additional indebtedness, and by implementing certain formalities designed to expressly reinforce its status as a distinct corporate entity from PMI. Nevertheless, the Notes themselves do not restrict ~~Prosper’s~~Prosper Funding’s incurrence of other indebtedness or the grant or imposition of liens or security interests on ~~the~~Prosper Funding’s assets, ~~of Prosper,~~ and holders of the Notes do not themselves have a security interest in the corresponding borrower loan or the proceeds of that loan. Accordingly, in the event of a bankruptcy or similar proceeding of Prosper Funding, the relative rights of a holder of a Note ~~as compared to the holders of unsecured indebtedness of Prosper, are~~may be uncertain. To further limit the risk of ~~Prosper’s~~Prosper Funding’s insolvency, Prosper Funding has therefore granted the indenture trustee, for the benefit of the Note holders, a security interest in ~~Prosper’s right to payment under,~~all of the borrower loans and all payments and proceeds ~~received by~~ Prosper Funding receives on the ~~corresponding~~ borrower loans and in the bank account in which the borrower loan payments are deposited. The indenture trustee may exercise its legal rights to the collateral only if an event of default has occurred under the indenture, which would include Prosper Funding’s becoming subject to a bankruptcy or similar proceeding. Only the indenture trustee, not the holders of the Notes, has a security interest in the above collateral. If the indenture trustee were to exercise its legal rights to the collateral, the indenture provides that amounts collected on a borrower loan (minus allowable fees and expenses) are to be applied to amounts due and owing on the corresponding Note. There can be no assurance, however, that the indenture trustee, or ultimately the Note holders, would realize any amounts from the collateral. See “Risk Factors—Risks Related to Prosper ~~Our~~Funding and PMI, the Platform and ~~Our~~Prosper Funding’s Ability to Service the Notes” for more information.

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Servicing fees and ~~Other~~other ~~Charges~~charges		~~We receive~~Prosper Funding subtracts a servicing fee from every loan payment it receives. The amount of the servicing fee with respect to a particular payment is calculated by (a) multiplying the applicable annual servicing fee rate by a fraction, the numerator of which is equal to ~~an annualized~~the number of days since the borrower’s last payment (or, if applicable, since the date on which the relevant loan was funded) and the denominator of which is 365, and (b) multiplying the product obtained by the outstanding principal balance of the loan prior to applying the current payment. The annual servicing fee rate is currently set at 1% per annum of the outstanding principal balance of the corresponding ~~borrower~~ loan prior to applying the current payment, but ~~which~~ Prosper Funding may ~~extend~~increase that in the future to ~~between~~a rate greater than 1% ~~and~~but less than or equal to 3%~~, which we deduct from each lender member’s share of the borrower loan payments we receive.~~ per annum. Any change to ~~our~~the servicing fee will only apply ~~only~~ to Notes offered and sold after the date of the change. Listings set forth the applicable servicing ~~fee charged by Prosper.~~fee. Because servicing fees reduce the effective yield to lenders, the yield percentage displayed in ~~listings~~each listing is net of servicing fees. ~~Any~~Prosper Funding will retain any non-sufficient funds fees charged to a borrower’s account ~~will be retained by Prosper as additional servicing compensation.~~to cover its administrative expenses. If a borrower loan enters collection, ~~either Prosper or~~ the collection agency will charge a collection fee of between 17% and ~~40%~~30% of any amounts that are obtained, in addition to any legal fees incurred in the collection effort. The collection fee will vary ~~dependent upon~~depending on the collection agency used. The collection fees charged by the various collection agencies can be accessed through hyperlinks from the bidding page on ~~our~~the platform. These fees will correspondingly reduce the amounts of any payments lender members receive on the corresponding Notes and are not reflected in the yield percentage displayed in listings. WeProsper Funding will pay lender members any late fees ~~we receive~~it receives on borrower loans.

Use of proceeds		WeProsper Funding will use the proceeds of each series of Notes to purchase the corresponding borrower ~~loan obtained by the borrower member.~~loan.

Electronic form and transferability		The Notes will be issued in electronic form only and will not be listed on any securities exchange. The Notes will not be transferable except through the Folio Investing Note Trader platform operated and maintained by FOLIOfn Investments, Inc., a registered broker-dealer. There can be no assurance that a market for the Notes will develop on the Note Trader platform and, therefore, lender members must be prepared to hold their Notes to maturity. See “About ~~Prosper”~~the Platform—Note Trader Platform” for more information.

U.S. federal income tax consequences		Although the matter is not free from doubt, ~~we intend~~Prosper Funding intends to treat the Notes as ~~our~~its debt instruments that have original issue discount (“OID”) for U.S. federal income tax purposes. Accordingly, if you hold a Note, you will be required to include OID currently as ordinary interest income for U.S. federal income tax purposes (which may be in advance of interest payments on the Note) if the Note has a maturity date of more than one year, regardless of your regular method of tax accounting. If the Note has a maturity of one year or less, (1) if you are a cash-method taxpayer, in general, you will not have to include OID currently in income on your Note unless you elect to do so, and (2) if you are an accrual-method taxpayer, in general, you will have to include OID currently in income on your Note. You should consult your own tax advisor regarding the U.S. federal, state, local and non-U.S. tax consequences of the purchase, ownership, and disposition of the Notes (including any possible differing treatments of the Notes). See “Material U.S. Federal Income Tax Considerations” for more information.

Financial suitability		To purchase ~~Notes,~~the Securities, lender members located in Alaska, Idaho, ~~Maine,~~Missouri, New Hampshire, ~~Oregon,~~ Virginia ~~and~~or Washington must meet one or more of the following suitability requirements:

		a.	(i) You must have an annual gross income of at least $70,000; (ii) your net worth must be at least ~~$70,000;~~$70,000 (exclusive of home, home furnishings and automobiles); and (iii) the total amount of ~~Notes~~Securities you purchase cannot exceed 10% of your net ~~worth;~~worth (exclusive of home, home furnishings and automobiles); or

		b.	(i) Your net worth must be at least ~~$250,000;~~$250,000 (exclusive of home, home furnishings and automobiles); and (ii) the total amount of ~~Notes you purchase cannot exceed 10% or your net worth.~~

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		~~Lender members that are residents of California must meet one or more of the following suitability requirements:~~

		a.	(i) You must have had an annual gross income of at least $85,000 during the last tax year; (ii) you must have a good faith belief that your annual gross income for the current tax year will be at least $85,000; and (iii) the total amount of NotesSecurities you purchase cannot exceed 10% of your net ~~worth; or~~
		b.	~~(i) Your~~worth (exclusive of home, home furnishings and automobiles). The Maine Office of Securities recommends that an investor’s aggregate investment in this offering and similar offerings not exceed 10% of the investor’s liquid net worth. For this purpose, “liquid net worth” is defined as that portion of net worth ~~must be at least $200,000;~~that consists of cash, cash equivalents and ~~(ii) the total amount of Notes you purchase cannot exceed 10% or your net worth; or~~
		c.	~~(i) Your net investment in Notes cannot exceed $2,500; and (ii) the total amount of Notes you purchase cannot exceed 10% or your net worth.~~

readily marketable securities.

For purposes of these suitability requirements, you and your spouse are considered to be a single person. In addition, the following definitions apply:

"annual gross income" means the total amount of money you earn each year, before deducting any amounts for taxes, insurance, retirement contributions or any other payments or expenses;

"net worth" means the total value of all your assets, minus the total value of all your liabilities. The value of an asset is equal to the price at which you could reasonably expect to sell it. In calculating your net worth, you should only include assets that are liquid, meaning assets that consist of cash or something that could be quickly and easily converted into cash, such as a publicly-traded stock. You shouldn't include any illiquid assets, such as homes, home furnishings or cars;

"net investment" means the principal amount of ~~Notes~~Securities purchased, minus principal payments received on the ~~Notes.~~Securities.

Lender members should be aware that weProsper Funding may apply more restrictive financial suitability standards or maximum investment limits to residents of certain states. If established, before making commitments to purchase ~~Notes,~~Securities each lender member will be required to represent and warrant that he or she meets these minimum financial suitability standards and maximum investment limits. See “Financial Suitability Requirements” for more information.

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PMI Management Contracts

Issuer		Prosper Marketplace, Inc.

Securities offered		PMI Management Contracts issued by PMI and attached to the Notes offered on the platform. The PMI Management Contracts relate solely to the services provided by PMI to Prosper Funding pursuant to the Administration Agreement.

Offering price		No separate consideration will be paid for the PMI Management Contracts and such securities will not be separable from the Notes.

Use of proceeds		PMI will not receive any proceeds from the issuance of the PMI Management Contracts.

Electronic form and transferability		The PMI Management Contracts will be issued in electronic form only.

U.S. federal income tax consequences		PMI expects that the purchase, sale and holding of the PMI Management Contracts will not have any U.S. federal income tax consequences.

Financial suitability		See “The Offering—Borrower Payment Dependent Notes—Financial Suitability.”

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The following diagram illustrates the basic structure of ~~our~~the platform for a single series of Notes. This graphic does not demonstrate many details of ~~our~~the platform, including the effect of prepayments, late payments, late fees or collection fees. See “About ~~Prosper”~~the Platform” on page 40 for more information.

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~~QUESTIONS~~ ~~AND ANSWERS~~

Q:	~~Who is Prosper?~~

A:	Prosper provides a peer-to-peer online credit platform that enables its borrower members to borrow money and its lender members to purchase Notes issued by Prosper, the proceeds of which facilitate the funding of specific loans made to borrower members.

Q:	~~What is our platform?~~

Our platform is an online marketplace that permits our lender members to bid on listings and purchase Notes from Prosper that are dependent for payment on payments we receive on the corresponding borrower loans described in the listings. All listings on our platform are posted by individual consumer members of Prosper requesting individual consumer loans, which we refer to as “borrower listings” or “listings” and “borrower loans,” respectively. Each listing sets forth the desired loan amount, borrower interest rate, lender yield percentage, and other information.

Q:	~~Who is WebBank?~~

A:	WebBank is an FDIC-insured, Utah-chartered industrial bank that is authorized or permitted to make loans in the states where borrower members reside, and makes all borrower loans originated through our platform.

Q:	~~What is a borrower listing?~~

A borrower listing is a request by a borrower member for a borrower loan in a specified amount. In addition to the borrower’s requested loan amount and interest rate, which is set by Prosper, each listing will show the lender’s yield percentage, which will equal the borrower’s interest rate, net of servicing fees, the minimum amount of total bids required for the loan to fund, and the Prosper Rating and estimated loss rate for the listing. The listing will also show the borrower’s numerical credit score range, debt-to-income ratio, summary information from the borrower’s credit report, and self-reported occupation, employment status and range of income information, and may also include the borrower’s narrative description of why the loan is being requested and the borrower’s financial situation. The specific numerical credit score we receive for a borrower from the credit reporting agency is not displayed or disclosed to anyone (including the borrower). A listing may also contain questions asked by lender members about the listing and the borrower member’s responses to those questions. Borrower members are only identified by a Prosper screen name in their listings, and are not permitted to disclose their identity or contact information. Listings may only be created by individuals registered as borrowers on our platform. Listings are displayed publicly on our platform, although certain information is only viewable by registered members.

Q:	~~What are borrower loans?~~

Borrower loans are unsecured obligations of individual borrower members with an interest rate determined by Prosper. Borrower loans currently have a term of one, three or five years, but we may in the future extend available loan terms to between three months to seven years. Each borrower loan is originated through our platform, funded by WebBank and sold and assigned to Prosper after it is made in exchange for the principal amount of the corresponding borrower loan. Borrower members may request loans within specified minimum and maximum principal amounts, currently $2,000 and $25,000, respectively, but in the future Prosper may permit borrowers to request loans in principal amounts between $500 and $35,000. Borrower loans are repayable in monthly installments and are unsecured and unsubordinated. Borrower loans may be repaid at any time by borrower members without prepayment penalty. A borrower loan will be made to a borrower member only if the borrower’s listing has received bids equal to or exceeding the minimum amount required for the loan to fund.

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Q:	~~Do lender members make loans directly to borrower members?~~

No. Lender members do not make loans directly to borrower members. Instead, lender members purchase Notes issued by Prosper, the proceeds of which are designated by the lender members who purchase the Notes to facilitate the funding of the corresponding borrower loan. We use all proceeds we receive from issuances of the Notes to purchase the borrower loans. Even though lender members do not make loans directly to Prosper borrower members, the lender members will nevertheless be wholly dependent on the borrowers for repayment of the Notes. If a borrower defaults on the payment obligations under a borrower loan, Prosper will not have any obligation to make payments to the holders of Notes dependent for payment on that borrower loan.

Q:	~~Who are our lender members?~~

Our lender members are individuals and institutions that have the opportunity to buy our Notes. Lender members must register on our website. Any natural person at least 18 years of age who is a U.S. resident with a bank account and a social security number or any institution with a taxpayer identification number can be a lender member and place bids on our platform. During lender registration, potential lender members must agree to a credit profile authorization statement for identification purposes, a tax withholding statement and the terms and conditions of the Prosper website, and must enter into a lender registration agreement with Prosper, which will govern the terms under which a lender member may purchase Notes from Prosper. In order to bid on a listing, a lender member must have funds on deposit in a Prosper funding account in at least the amount of the lender member’s bid.

Q:	~~Who are borrower members?~~

Any natural person at least 18 years of age who is a U.S. resident in a state where loans through the platform are available, has a bank account and a social security number, and has registered with Prosper and passed our anti-fraud and identity verification process may be a borrower member. Prosper currently allows borrower members to post listings on our platform regardless of their income. Prosper reserves the right to restrict access to our platform by setting minimum credit or other guidelines for borrowers. Currently, a borrower must have a credit score of at least 640 (before October 16, 2008, the minimum was 520) in order to post a listing on our platform, except that the minimum is 600 for borrower members who (1) had previously obtained a Prosper loan and paid off the loan in full, or (2) are seeking a second loan and are otherwise eligible for a second loan. In the future, Prosper may allow borrowers with a credit score below 640 to post listings as long as bids are made primarily from friends and family.

Q:	~~What is a bid?~~

A bid on a listing is a lender member’s commitment to purchase a Note in the principal amount of the lender member’s bid. Lender members “bid” the amount they are willing to commit to the purchase of a Note that is dependent for payment on payments we receive on the borrower loan described in the listing. A lender who wishes to bid on a listing must have funds in the amount of the bid in the Lender member’s funding account at the time the bid is made. Currently, a bid may be between $25 and the full amount of the requested loan amount described in the listing. Once a bid is placed, it is irrevocable, and the amount of the bid may not be withdrawn from the lender member’s funding account, unless the bidding period expires without the listing having received enough bids to be funded.

Q:	~~What are our Borrower Payment Dependent Notes?~~

Our lender members may purchase Borrower Payment Dependent Notes, or “Notes,” from Prosper. We will issue the Notes in a series, with each series dependent for payment on payments we receive on a specific borrower loan. The proceeds of each series of Notes are used to purchase the borrower loan upon which that series of Notes is dependent for payment. Each series of Borrower Notes will have a stated interest rate equal to the final yield percentage, as determined by Prosper. The interest rate on the Note will be lower than the interest rate on the corresponding borrower loan because the yield percentage is net of Prosper’s fee for servicing the corresponding borrower loan. We will pay each Note holder principal and interest on the Note in an amount equal to the pro rata portion of the principal and interest payments, if any, we receive on the corresponding borrower loan, net of our servicing fee currently set at 1%, which Prosper may extend in the future to between 1% and 3%. We will also pay the Note holder any other amounts we receive on the borrower loans, including late fees and prepayments, subject to our servicing fee, if any, except that we will not pay the Note holder any non-sufficient funds fees or collection fees we or a third-party collection agency charge. The Notes are special, limited obligations of Prosper only and not the borrowers. The Notes will be unsecured and do not represent an ownership interest in the corresponding borrower loans.

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Q:	~~How are interest rates and payments calculated on the Notes?~~

The interest rate on a Note is the yield percentage that corresponds to the interest rate determined by Prosper for the related borrower loan. Prosper sets the interest rates for borrower loans based on Prosper Ratings, as well as additional factors, such as estimated loss rates, loan terms, group affiliations, the general economic environment and competitive conditions. The yield percentage on each series of Notes is equal to the interest rate on the related borrower loan, minus Prosper’s servicing fee, currently set at 1%, which Prosper may extend in the future to between 1% and 3%. Payments are in an amount sufficient to amortize the Note amount over the term of the Note at the interest rate set forth in the Note.

Q:	~~What is Quick Invest?~~

Our loan search tool, Quick Invest, allows lenders to identify Notes that meet their investment criteria. A lender using Quick Invest is asked to indicate (i) the Prosper Rating or Ratings she wishes to use as search criteria, (ii) the total amount she wishes to invest and (iii) the amount she wishes to invest per Note. Quick Invest then compiles a basket of Notes for her consideration that meet her search criteria. If the pool of Notes that meet her criteria exceeds the total amount she wishes to invest, Quick Invest selects Notes from the pool based on how far the listings corresponding to the Notes have progressed through our loan verification process, ~~i.e.~~ , Notes from the pool that correspond to listings for which we have completed our loan verification process will be selected first. If the pool of Notes that meet the lender member’s criteria and for which we have completed loan verification still exceeds the amount she wishes to invest, Quick Invest selects Notes from that pool based on the principle of first in, first out, ~~i.e.~~ , the Notes from the pool with the corresponding listings that were posted on our website earliest will be selected first. If the member’s search criteria include multiple Prosper Ratings, Quick Invest divides her basket into equal portions, one portion representing each Prosper Rating selected. To the extent available Notes with these Prosper Ratings are insufficient to fill the lender’s order, the lender is advised of this shortfall and given an opportunity either to reduce the size of her order or to modify her search criteria to make her search more expansive Our Auto Quick Invest feature allows lender members (i) to have Quick Invest searches run on their designated criteria automatically each time new listings are posted on our platform, and (ii) to place bids on any Notes identified by each such search. See “About Prosper.”

Q:	~~How does the bidding process work for borrower listings?~~

A bid on a borrower listing is a lender member’s binding commitment to purchase a Note in the principal amount of the lender member’s bid, should the listing receive bids equal to or exceeding the minimum amount required for the loan to fund. Lender members bid the amount they are willing to commit to purchase a Note dependent for payment on payments we receive on the borrower loan described in the listing. After a listing is posted, lender members can place bids on that listing until the listing has received bids totaling the requested loan amount. Once the listing has received bids totaling the requested loan amount, those bids are the “winning bids” and no further bids can be placed. The maximum length of the bidding period is 14 days. If the listing does not receive bids equal to or exceeding the minimum amount by the close of the fourteenth day after the listing is posted, the listing will terminate and will not be funded.

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Q:	~~Is partial funding of loans permitted?~~

Yes. When a borrower member creates a loan listing, she may opt for partial funding, which means her loan can be funded if it receives bids for 70% or more of the amount requested. Each loan listing will indicate whether the borrower has opted for partial funding as well as the minimum amount of total bids required for the loan to fund. We may change the percentage threshold for partial funding, which is currently set at 70%, from time to time. Any such change will be disclosed on our website and will only affect listings created after we have implemented such change. See “About Prosper” for more information.

Q:	~~How does Prosper set interest rates for borrower loans?~~

Prosper has an interest rate committee, consisting of members of our management team, that meets regularly to set the interest rates for borrower loans. The committee sets rates based on Prosper Ratings, as well as additional factors, such as estimated loss rates, loan terms, group affiliations, the general economic environment and competitive conditions. A table listing the current rates set by the committee is posted on our website. The committee meets to review this table on at least a monthly basis, but may meet more frequently as changes in market conditions and the general economic environment dictate. The yield percentage on each series of Notes is equal to the interest rate on the related borrower loan, minus Prosper’s servicing fee, currently set at 1%, which Prosper may extend in the future to between 1% and 3%. The interest rate set by Prosper for each loan listing, as well as the yield percentage for the corresponding Notes, will be set forth on the listing, as posted on our website, and will also be included in the listing report filed by Prosper for that listing. See “About Prosper” for more information.

Q:	~~How are the Notes being offered?~~

A:	We are offering the Notes directly to lender members only through our website for a purchase price of 100% of the principal amount of the Notes. We are not using any underwriters, and there will be no underwriting discounts.

Q:	~~Will I receive a certificate for my Notes?~~

No. The Notes are issued only in electronic form. This means that each Note will be stored on our website. You can view a record of the Notes you own and the form of your Notes online and print copies for your records by visiting your secure, password-protected webpage in the “My Account” section of our website.

Q:	~~Will the Notes be listed on an exchange?~~

A:	~~No. The notes will not be listed on any securities exchange.~~

Q:	~~Will I be able to sell my Notes?~~

~~The Notes will not be transferable except through the Note Trader platform operated and maintained by FOLIO~~fn ~~Investments, Inc., a registered broker-dealer~~ . There can be no assurance that a market for Notes will develop on the Note Trader platform and, therefore, lender members must be prepared to hold their Notes to maturity. See “About Prosper” for more information.

Q:	~~Does Prosper verify the listing information provided by borrower members?~~

We verify the identity of every borrower who obtains a loan through our platform using a combination of documentary and non-documentary methods. We ask each borrower to submit a copy of her current driver’s license, passport or other government-issued, photo identification card, which we authenticate using third-party reference materials. In addition, we compare the information contained in the credit report we obtain for the borrower from a consumer reporting agency with the information contained in the borrower’s application. We also run the borrower’s application information through a fraud database. Finally, we require the borrower to submit bank statements, cancelled checks or other documentary evidence to verify the accuracy of her bank account information. For the small number of borrowers who do not have a current, government-issued photo identification card, we may rely on the other screening processes described above to verify their identity. But we obtain and authenticate photo identification from the great majority of our borrowers, and perform the other processes described above for all borrowers who obtain a loan. If we are unable to verify the identity of a borrower in the manner described above, we will cancel the borrower’s loan listing or pending loan.

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In addition to identity verification, we verify income and employment information for a subset of our borrowers based on a proprietary algorithm. The intention of this algorithm is to identify instances where the borrower’s self-reported income is highly determinative of the borrower’s Prosper Rating. The algorithm gives greatest weight to Prosper Rating, loan amount, stated income, and debt-to-income ratio. For the period from July 14, 2009 through December 31, 2011, we verified employment and/or income on approximately 47% of the loans we originated on a unit basis (8,904 out of 19,059) and approximately 67% of our originations on a dollar basis ($75,308,364 out of $113,074,405). If a borrower fails to provide satisfactory information in response to an income or employment verification inquiry, we (a) request additional information from the borrower, (b) cancel the borrower’s listing or (c) refuse to proceed with the funding of the borrower loan.

Where we choose to verify a borrower’s income or employment information, the verification is normally done after the borrower’s listing has already been posted. This allows Prosper to focus its verification efforts on the listings most likely to fund, and increases the percentage of funded loans that are subject to verification. When we identify inaccurate employment or income information in a borrower’s application or listing that has resulted in the borrower obtaining a different Prosper Rating or interest rate for her loan than she would have obtained if she had provided the correct information, we cancel the listing. If we identify inaccurate information in the borrower’s listing that does not trigger cancellation of the listing, we do not update the listing to include the corrected information. Our participation in funding loans on the platform from time to time has had, and will continue to have, no effect on our income and employment verification process, the selection of loan requests verified or the frequency of income and employment verification. Please see “About Prosper” for further information.

Q:	~~Will lender members have access to financial statements, financial histories or any other financial information of the borrower members?~~

No. Lender members do not have access to financial statements, financial histories or any other financial information of the borrower members. Borrower members may elect to provide financial information in their listing description, or in response to lender members’ questions, but such information is not verified.

Q:	~~Are the Notes secured by any collateral?~~

No. All Notes will be unsecured special, limited obligations of Prosper. The Notes do not restrict Prosper’s incurrence of other indebtedness or the grant or imposition of liens or security interests on the assets of Prosper, and holders of the Notes do not have a security interest in the corresponding borrower loan or the proceeds of that loan. To limit the risk of Prosper’s insolvency, Prosper has granted the indenture trustee a security interest in Prosper’s right to payment under, and all proceeds received by Prosper on, the corresponding borrower loans and in the bank account in which the borrower loan payments are deposited. The indenture trustee may exercise its legal rights to the collateral only if an event of default has occurred under the indenture, which would include Prosper becoming subject to a bankruptcy or similar proceeding. Only the indenture trustee, not the holders of the Notes, has a secured claim to the above collateral.

Q:	~~Does Prosper or WebBank participate in the platform as a lender member?~~

From time to time, Prosper may fund portions of loan requests on its platform and hold any related Notes it purchases for its own account. Any Prosper bid on a loan will be made public in the same manner in which bids by other bidders are made public. In addition, loans upon which Prosper bids will be identified to other bidders in a manner that is intended to make Prosper’s direct participation in the bidding clear. Prosper will participate in loans on its platform on the same terms and conditions as other potential lenders on the platform. In some cases, Prosper’s participation in a loan may cause the loan to fund, and in some cases, fund faster, than it would fund in the absence of Prosper’s participation. The amount that Prosper may choose to fund of any particular loan may vary significantly and Prosper reserves the right to fund up to the entire amount of a given loan request. WebBank does not participate in our platform as a lender member. The directors or executive officers of Prosper have in the past and may in the future participate in their individual capacities as lender members on our platform. WebBank is the originating lender on all borrower loans made through our platform, and then sells and assigns the borrower loans to Prosper.

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Q:	~~Do lender members need to be licensed as a consumer lender or finance company?~~

Our platform is designed and structured in a manner such that the activities performed by lender members on our platform do not trigger state lending or finance company licensing requirements. States that have lending or finance company licensing laws normally require a lending license for persons who engage in the business of making loans. All borrower loans originated on our platform are made by WebBank, and WebBank is the named lender on all promissory notes representing borrower loans. Prosper performs its identity and anti-fraud verification process on all borrower loans and services the borrower loans. WebBank is the originating lender and has authority to make borrower loans in all states where loans through the platform are available. Persons who register as lender members do not lend money, but rather purchase Notes issued by Prosper. The proceeds of the sale of Notes are not disbursed to borrowers. See “Government Regulation—Regulation and Consumer Protection Laws” for more information and “Risk Factors—Risks Inherent in Investing in the Notes” for more information.

Q:	~~Can borrower members have more than one loan outstanding at any one time?~~

Yes. Borrower members may have up to two borrower loans originated through the platform outstanding at any one time, provided that the aggregate outstanding principal balance of both borrower loans does not exceed the then-current maximum allowable loan amount for borrower loans (currently $25,000, but which may increase to $35,000 in the future). If a borrower member with a loan originated through the platform outstanding posts a listing for a second loan through the platform, the listing will disclose that the borrower member has a loan originated through the platform outstanding. Currently, to be eligible to obtain a second borrower loan while an existing loan is outstanding, the borrower member must satisfy additional criteria. See “About Prosper” for more information.

Q:	~~How much money can lender members bid on our platform?~~

A:	Our platform currently allows lender members to bid as little as $25 and as much as the full amount of any particular listing, up to an aggregate amount of $5,000,000 for individuals and $50,000,000 for institutions.

Q:	~~What is a Prosper Rating?~~

Each listing will be assigned a proprietary credit rating by Prosper, referred to as the Prosper Rating. The Prosper Rating is a letter that indicates the level of risk associated with a listing and corresponds to an estimated average annualized loss rate range. There are currently seven Prosper Ratings, represented by seven letter scores, but this, as well as the loss ranges associated with each, may change over time as the marketplace dictates. The Prosper Rating will be derived from two scores: a consumer reporting agency score and an in-house custom score calculated using the historical performance of previous borrower loans with similar characteristics. The use of these two scores will determine an estimated loss rate for each listing, which correlates to a Prosper Rating. This rating system allows Prosper to maintain consistency when assigning a rating to each listing. See “About Prosper” for more information.

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Q:	~~Under what circumstances is Prosper required to offer to repurchase the Notes or indemnify lender members?~~

Under the lender registration agreement, in the event of a material default under a series of Notes due to verifiable identity theft of the named borrower’s identity, Prosper will repurchase the Notes and credit the lender members’ accounts with the remaining unpaid principal balance of the Notes. The determination of whether verifiable identity theft has occurred is in our sole discretion. In the event we breach any of our other representations and warranties in the lender registration agreement pertaining to the Notes, and such breach materially and adversely affects a series of Notes, we will either indemnify the lender members, repurchase the series of Notes or cure the breach. The limited circumstances where this may occur include (1) the failure of the corresponding borrower loan to materially comply at origination with applicable federal and state law, (2) the listing corresponding to the Note contains a Prosper score different from the score calculated by Prosper for that listing, or (3) Prosper incorrectly applying its formula to determine the Prosper score, resulting in a Prosper Rating different from the Prosper Rating that should have appeared in the listing. Prosper is not, however, under any obligation to cure, indemnify or repurchase a series of Notes because of the Prosper score or Prosper Rating for any other reason. See “About Prosper.”

Q:	~~Why did Prosper revise its credit grading system?~~

We revised our credit grading system prior to the relaunch of our platform in July 2009. The goal of the Prosper Rating system is to have our ratings align with loss rate tiers, rather than simply with credit score tiers, to facilitate understanding among lender members and to maintain consistency across listings.

Q:	~~What is a debt-to-income ratio?~~

Part of a borrower’s credit profile displayed in listings is a debt-to-income ratio (or DTI). DTI is a measurement of the borrower’s ability to take on additional debt. This number takes into consideration how much debt the borrower has or will have, including the borrower loan. The DTI is expressed as a percentage and is calculated by dividing the borrower’s monthly income into his or her monthly debt payments, including the debt resulting from the borrower loan being requested. Debt amounts are taken from the borrower’s credit report without verification and exclude monthly housing payments. The borrower’s income is self-reported and not verified by Prosper.

Q:	~~How do lender members receive payments on the Notes?~~

All payments on the Notes are processed through our platform. If and when we make a payment on a Note, the payment will be deposited in the lender member’s Prosper account. Lender members may elect to have available balances in their Prosper account transferred to their bank account at any time, subject to normal execution times for such transfers (generally 2-3 days).

Q:	~~What are the fees and charges withheld from borrower loan payments and retained by Prosper?~~

Servicing fees charged by Prosper are deducted from loan payments received on borrower loans, and reduce the lenders’ effective yield. This reduction will be automatically taken into account by our platform in calculating the yield percentage displayed in listings. See “About the Loan Platform—Loan Servicing and Collection” for more information.

Any non-sufficient funds fees charged to a borrower’s account will be retained by Prosper and will not be remitted to you. If collection action is taken in respect of a borrower loan, Prosper or the collection agency will charge a collection fee of between 17% and 40% of any amounts that are obtained, in addition to any legal fees incurred in the collection effort. The collection fee will vary dependent upon the collection agency used. In addition, any legal fees incurred in connection with collection efforts will be deducted from any borrower loan payments Prosper receives. These fees will correspondingly reduce the amounts of any payments lender members receive on the Notes. You will receive all other amounts Prosper receives on borrower loans, including late fees and prepayments, subject to our servicing fees.

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Q:	~~What happens if a borrower misses a payment or does not repay the borrower loan?~~

Borrowers who miss payments face the same consequences as they would if they missed payments on any similar form of bank or other commercial credit obligation, including in most cases the reporting of late payments to consumer reporting agencies. Borrowers may also incur late fees for missed or delinquent payments, to the extent allowed by applicable law. Late fees collected by Prosper on borrower loans are passed on to the lender members who own the Notes dependent for payment on that borrower loan.

Q:	~~What guarantees do lender members have that a Note will be paid?~~

A:	~~There are no guarantees that a Note will be paid. See “Risk Factors—Risks Related to Borrower Default” for more information.~~

Q:	~~Can lender members collect on late payments themselves?~~

No. Under the lender registration agreement, each lender member agrees that under no circumstances may a lender member attempt collection of a late payment, or any amounts owing on a borrower loan corresponding to their Note, themselves. Lender members must depend on Prosper or third-party collection agents to pursue collection on delinquent borrower loans. If collection action must be taken in respect of a borrower loan, Prosper or the collection agency will charge a collection fee of between 17% and 40% of any amounts that are obtained, in addition to any legal fees incurred in the collection effort. These fees will correspondingly reduce the amounts of any payments lender members receive on the Notes.

We are obligated to use commercially reasonable efforts to service and collect borrower loans, in good faith, accurately and in accordance with industry standards customary for servicing loans such as the borrower loans. When a borrower’s payment is late on a borrower loan, we communicate directly with the borrower to encourage repayment. We normally refer borrower loans that become more than 30 days past-due to a nationally-licensed collection agency, which makes further attempts to collect delinquent amounts and have the borrowers bring the account current. We may, in our sole discretion and subject to our servicing standard, refer a borrower loan to a collection agency, elect to initiate legal action to collect a borrower loan or sell a borrower loan to a third party debt buyer at any time. We may also work with the borrower member to structure a new payment plan for the borrower loan without the consent of any holder of the Notes corresponding to the borrower loan. Borrower loans that become more than 120 days past due are charged off. Depending on market conditions, we either sell charged off loans to an unaffiliated third party debt purchaser or continue to collect on those accounts, and we may in our discretion institute legal proceedings to collect the debt. In servicing borrower loans we may, in our discretion, utilize affiliated or unaffiliated third party loan servicers, collection agencies or other agents or contractors. We report loan delinquencies and charge-offs to consumer reporting agencies, which negatively impacts the borrower’s credit file. Borrowers whose loans are charged off are not permitted to post any further listings on our platform. See “About Prosper” for more information.

Q:	~~What happens if a borrower repays early?~~

Borrower members are permitted to make extra payments on, or prepay, their borrower loans in part or in their entirety at any time without penalty. In the event of a prepayment of the entire remaining unpaid principal amount of a borrower loan, lender members will receive their pro-rata share of such prepayment, net of servicing fees, and interest will stop accruing after the date we receive the prepayment. If a borrower partially prepays a borrower loan, we will pay lender members their share of the prepayment amount we receive, net of servicing fees, and the amount of the prepayment will reduce the principal amount on the Note. See “Risk Factors—Risks Inherent in Investing in the Notes” for more information.

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Q:	~~How are the Notes treated for United States federal income tax purposes?~~

Although the matter is not free from doubt, we intend to treat the Notes as our debt instruments that have original issue discount (“OID”) for U.S. federal income tax purposes. Accordingly, if you hold a Note, you will be required to include OID currently as ordinary interest income for U.S. federal income tax purposes (which may be in advance of interest payments on the Note) if the Note has a maturity date of more than one year, regardless of your regular method of tax accounting. If the Note has a maturity of one year or less, (1) if you are a cash-method taxpayer, in general, you will not have to include OID currently in income on your Note unless you elect to do so, and (2) if you are an accrual-method taxpayer, in general, you will have to include OID currently in income on your Note. You should consult your own tax advisor regarding the U.S. federal, state, local and non-U.S. tax consequences of the purchase, ownership, and disposition of the Notes (including any possible differing treatments of the Notes). See “Material U.S. Federal Income Tax Considerations” for more information.

Q:	~~What is a group?~~

A group can be any collection of people with common interests, including social, cultural, ethnic, professional, educational, athletic, religious, or any other official or unofficial affiliation. Groups may consist of Prosper borrower members, lender members or registered Prosper users who have not taken a role, or any combination of the above. Groups allow people to join together for the common goal of borrowing money at better rates and give borrowers an additional incentive—the borrower’s reputation in the group—to meet their obligation to repay a borrower loan. Prosper does not approve or verify group membership criteria and any claims of group affiliation by Prosper borrower members or lender members may be erroneous.

Q:	~~What are the benefits of group membership?~~

Borrower listings identify the group, if any, to which the borrower belongs. Prosper believes that a borrower’s identification with a group may attract bids from lender members with similar interests, resulting in a greater likelihood of loan funding. As discussed above, Prosper does not verify group membership criteria and any claims of group affiliation by Prosper borrower members or lender members may be erroneous.

Q:	~~Do groups or group leaders guarantee the borrower loans requested by their members?~~

A:	~~No. Neither groups nor group leaders guarantee their members’ obligations under any borrower loan in any way. Borrowers are fully responsible for their own credit obligations.~~

Q:	~~Do groups or group leaders make bidding decisions or set rates for borrower loans requested by their members?~~

A:	No. Neither groups nor group leaders make bidding decisions or set interest rates, although we may take group affiliation into account in setting interest rates for borrower loans. See “About Prosper” for more information.

Q:	~~How is Prosper regulated?~~

The servicing of Notes and the corresponding borrower loans is subject to state and federal regulation. Prosper and the borrower loans originated on our platform must comply with applicable state laws, including licensing and disclosure requirements. In addition, in connection with the origination and servicing of borrower loans, we must comply with the federal Consumer Credit Protection Act, including, as applicable, the Truth-in-Lending Act, Equal Credit Opportunity Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act and Electronic Fund Transfer Act, as well as the federal Electronic Signatures in Global and National Commerce Act (ESIGN), and other federal and state laws governing privacy and data security and prohibiting unfair or deceptive business practices. We are subject to examination, supervision, and potential regulatory investigations and enforcement actions by state and federal agencies, such as the Federal Trade Commission, that administer the federal consumer protection laws. See “Government Regulation—Regulation and Consumer Protection Laws” for more information.

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Q:	~~How is WebBank regulated?~~

WebBank’s lending activities are subject to state and federal regulation. WebBank and the borrower loans it makes must comply with applicable state lending laws, to the extent such laws are not preempted by federal law applicable to state-chartered industrial banks. In addition, WebBank must comply with the federal Consumer Credit Protection Act, including, as applicable, the Truth-in-Lending Act, Equal Credit Opportunity Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act and Electronic Fund Transfer Act, as well as the federal Electronic Signatures in Global and National Commerce Act (ESIGN), and other federal and state laws governing privacy and data security and prohibiting unfair or deceptive business practices. WebBank is subject to examination, supervision, and potential regulatory investigations and enforcement actions by state agencies that regulate Utah-chartered industrial banks, and federal agencies, such as the FDIC, that regulate industrial banks and administer the federal consumer protection laws. See “Government Regulation—Regulation and Consumer Protection Laws” for more information.

Q:	~~How does Prosper make money from our platform?~~

Each time a borrower loan is funded, the borrower is charged a transaction fee equal to a specified percentage (currently between 0.5% and 4.5%) of the amount of the borrower loan. Transaction fees on borrower loans are subject to change from time to time. The transaction fee on borrower loans is paid by the borrower out of the proceeds of the borrower loan at the time the borrower loan is funded. The transaction fee is paid to WebBank, and WebBank, in turn, pays Prosper amounts equal to the transaction fees as compensation for its loan origination activities. In addition, Prosper currently charges lender members a servicing fee equal to an annualized rate currently set at 1% of the outstanding principal balance of the corresponding borrower loan, but which Prosper may extend in future to between 1% and 3%, which we deduct from each lender member’s share of the borrower loan payments.

Q:	~~Are there any risks associated with an investment in the Notes?~~

A:	Yes. The Notes are highly risky and speculative. Investing in the Notes should be considered only by persons who can afford the loss of their entire investment. See “Risk Factors—Risks Inherent in Investing in the Notes” for more information.

Q:	~~Will lender members receive payments on the Notes in the event Prosper declares bankruptcy or otherwise experiences financial distress?~~

If Prosper were to become subject to a bankruptcy or similar proceeding, the rights of the holders of the Notes could be uncertain, and payments on the Notes may be limited, suspended or stopped even if the borrowers are making payments on the corresponding borrower loans. The Notes are unsecured and holders of the Notes do not have a security interest in the corresponding borrower loans or the proceeds of those corresponding borrower loans. The recovery, if any, of a holder on a Note may be substantially delayed. Even funds held by Prosper in an account for the benefit of the holders of Notes may potentially be at risk. To limit the non-payment risk in connection with Prosper’s insolvency, Prosper has granted the indenture trustee a security interest in Prosper’s right to payment under, and all proceeds received by Prosper on, the corresponding borrower loans and in the bank account in which the borrower loan payments are deposited. The indenture trustee may exercise its legal rights to the collateral only if an event of default has occurred under the indenture, which would include Prosper becoming subject to a bankruptcy or similar proceeding. Only the indenture trustee, not the holders of the Notes, has a secured claim to the above collateral. See “Risk Factors—Risks Related to Prosper, Our Platform and Our Ability to Service the Notes” for more information.

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Q:	~~What if Prosper were to go out of business?~~

If Prosper were to go out of business, no new borrower loans would be created and we would assign our servicing obligations to a suitable third party loan servicer. All existing Notes would be serviced to completion by such third party loan servicer. The third party loan servicer would take over the administrative responsibilities related to the Notes, such as the collection and transfer of borrower loan payments, providing timely payment notices, monthly lender member statements and required tax documentation, overseeing the collection of delinquent borrower loans, and reporting payment performance to consumer reporting agencies. We have entered into a back-up servicing agreement with a loan servicing company that is willing and able to transition servicing responsibilities in the event we can no longer do so. The third party is a financial services company that has extensive experience and knowledge entering into successor loan servicing agreements. They will also provide monthly investor reports on our loan servicing activity that will be available to Note holders. If Prosper is unable to assign its servicing obligations to a suitable third party loan servicer, borrowers would still be obligated to make payments on their borrower loans, but a lender member’s ability to receive payments on the Notes may be substantially impaired. See “Risk Factors—Risks Related to Prosper, Our Platform and Our Ability to Service the Notes” for more information.

Q:	~~What if WebBank were to go out of business?~~

If WebBank were to go out of business and Prosper was unable to identify and reach agreement with a suitable state-chartered or federally-chartered bank to take the place of WebBank, loans would be made by Prosper under the authority of its state lending licenses or other applicable state law. See “Risk Factors—Risks Relating to Compliance and Regulation—We rely on our agreement with WebBank to originate loans to borrower members on a uniform basis throughout the United States” for more information.

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FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “intend,” “anticipate,” “plan,” “continue” or similar expressions. In particular, information appearing under ~~“Business,~~“About the Platform,” “Risk Factors” ~~in this prospectus, and~~or “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in ~~our~~this prospectus, as well as the information appearing under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in PMI’s Annual Report for the fiscal year ended December 31, 2011, pages 73 to 83, which are incorporated by reference in this prospectus, includes forward-looking statements. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Where, in any forward-looking statement, ~~we express~~Prosper Funding or PMI expresses an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations of ~~our management~~Prosper Funding and PMI’s respective managements and is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:

the performance of the ~~Borrower Payment Dependent~~ Notes, ~~or “Notes”,~~ which, in addition to being speculative investments, are special, limited obligations that are not ~~secured,~~ guaranteed or insured;

~~our~~Prosper Funding’s ability to make payments on the Notes, including in the event that borrowers fail to make payments on the corresponding loans;

the reliability of the information about borrowers that is supplied by borrowers;

~~our~~Prosper Funding and PMI’s ability to service the loans, and their ability or the ability of ~~Prosper or~~ a third party debt collector to pursue collection against any borrower, including in the event of fraud or identity theft;

credit risks posed by the ~~credit worthiness~~creditworthiness of borrowers, the lack of a maximum debt-to-income ratio for borrowers, and the effectiveness of ~~Prosper’s~~the credit rating systems;

actions by some borrowers to defraud lender members and risks associated with identity theft;

~~our~~Prosper Funding and PMI’s limited operational history and lack of significant historical performance data about borrower performance;

the impact of current economic conditions on the performance of the Notes and loss rates of the Notes;

payments by borrowers on the loans in light of the facts that the loans do not impose restrictions on ~~borrowers~~additional borrower debt and do not include cross-default provisions;

~~our~~Prosper Funding and PMI’s compliance with applicable local, state and federal law, including the Investment Advisers Act of 1940, the Investment Company Act of 1940 and other laws;

potential efforts by state regulators or litigants to characterize ~~us,~~Prosper Funding or PMI, rather than WebBank, as the lender of the ~~loans originated through our platform;~~borrower loans;

the application of federal and state bankruptcy and insolvency laws to borrowers, Prosper Funding and ~~to Prosper;~~PMI;

the impact of borrower delinquencies, defaults and prepayments on the ~~return~~returns on the Notes;

the lack of a public trading market for the Notes and ~~the ability~~any inability to resell the Notes on the Note Trader platform;

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the federal income tax treatment of an investment in the ~~Notes;~~Securities;

~~our~~Prosper Funding and PMI’s ability to prevent security breaches, disruptions in service, and comparable events that could compromise the personal and confidential information held on ~~our~~their data systems, reduce the attractiveness of ~~our~~the platform or adversely impact ~~our~~their ability to service loans;

the resolution of pending litigation involving ~~Prosper,~~PMI, including any state or federal securities litigation; and

~~our~~Prosper Funding’s ability to compete successfully in the peer-to-peer and consumer lending industry.

There may be other factors that may cause ~~our~~ actual results to differ materially from the forward-looking statements. WeProsper Funding and PMI can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them does occur, what impact they will have on ~~our~~Prosper Funding or PMI’s results of operations and financial ~~condition.~~conditions. You should carefully read the factors described in the “Risk Factors” section of this prospectus for a description of certain risks that could, among other things, cause ~~our~~Prosper Funding and PMI’s actual results to differ from these forward-looking statements.

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All forward-looking statements speak only as of the date of this prospectus and are expressly qualified in their entirety by the cautionary statements included in this prospectus. WeProsper Funding and PMI undertake no obligation to update or revise forward-looking statements that may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, other than as required by law.

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~~RISK~~RISK FACTORS

~~Investing~~The Securities involve a high degree of risk. You should carefully consider the risks described below before making a decision to invest in ~~our securities involves significant risks. Please~~the Securities. If any of the following risks actually occurs, you might lose all or part of your investment in the Securities. In addition to the disclosures below, please read carefully the ~~section~~sections entitled “Item 1A. Risk Factors” beginning on page 48 of ~~our~~PMI’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2011 and on page 37 of its Quarterly Report on Form 10-Q for the period ended June 30, 2012, each previously filed with the SEC and incorporated by reference into this prospectus, and the sections entitled “Item 1A. Risk Factors” included in any subsequent Annual or Quarterly Report that may be incorporated by reference into this prospectus. Before making an investment decision, you should carefully consider these risks. The risks and uncertainties ~~we have~~ described are not the only ones facing ~~our company.~~Prosper Funding and PMI. Additional risks and uncertainties not presently known ~~to us~~ or that weProsper Funding and PMI currently deem immaterial may also affect ~~our~~Prosper Funding and PMI’s respective business operations.

Risks Related to Borrower Default

The Notes are risky and speculative investments for suitable investors only.

You should be aware that the Notes offered through the platform are risky and speculative investments. The Notes are special, limited obligations of Prosper Funding and depend entirely on payments to Prosper Funding of obligations of borrower members under the corresponding borrower loans. Notes are suitable only for lender members of adequate financial means. If you cannot afford to lose the entire amount of your investment in the Notes you purchase, you should not invest in the Notes.

Payments on the Notes depend entirely on payments Prosper Funding receives on corresponding borrower loans. If a borrower fails to make any payments on the corresponding borrower loan related to your Note, payments on your Note will be correspondingly reduced.

Prosper Funding will only make payments pro rata on a series of Notes after it receives a borrower’s payment on the corresponding borrower loan, net of servicing fees. Prosper Funding also will withhold from the funds received from the relevant borrower and otherwise available for payment on the Notes any non-sufficient funds fees and the amounts of any collection fees a third-party collection agency charges. Under the terms of the Notes, if Prosper Funding does not receive any or all payments on the corresponding borrower loan, payments on your Note will be correspondingly reduced in whole or in part. If the relevant borrower does not make a payment on a specific monthly loan payment date, no payment will be made on your Note on the corresponding succeeding Note payment date.

Information supplied by applicants may be inaccurate or intentionally false. Information regarding income and employment is not verified in many cases.

Applicants supply a variety of information regarding the purpose of the loan, income, occupation, and employment status that is included in borrower listings. Neither Prosper Funding nor PMI verifies the majority of this information, which may be incomplete, inaccurate or intentionally false. Applicants may misrepresent their intentions for the use of borrower loan proceeds. Neither Prosper Funding nor WebBank, nor PMI as agent of either of them, verifies any statements by applicants as to how loan proceeds are to be used nor confirms after loan funding how loan proceeds were used. All listings are posted on the platform without Prosper Funding or PMI verifying the information provided by the applicant, including the borrower’s stated income, employment status or occupation. Lender members should not rely on an applicant’s self-reported information such as income, employment status, or occupation in making investment decisions. In the cases in which PMI selects applicants for income and employment verification, the verification is normally done after the listing has been created but prior to the time the borrower loan is funded. From the period from July 14, 2009 to June 30, 2012, PMI verified employment and/or income on approximately 42% of the PMI Borrower Loans originated through the platform on a unit basis (11,910 out of 28,410) and approximately 64% of originations on a dollar basis ($117,706,420 out of $183,333,286). PMI selected these listings based on the same combination of factors it will use in selecting Prosper Funding listings for additional verification, including amount of loan requested, Prosper Rating, debt-to-income ratio and stated income. Listings do not disclose the identity of applicants, and lender members have no ability to obtain or verify applicant information either before or after they purchase a Note. If an applicant supplies false, misleading or inaccurate information, you may lose part or all of the purchase price you pay for a Note. Under Prosper Funding’s Administration Agreement with PMI, PMI is required to perform borrower identity and financial information verification services for Prosper Funding in the manner and to the extent contemplated in this prospectus. See “About the Platform—Borrower Identity and Financial Information Verification” for more information. The number or percentage of applicants whose income and employment information is verified by PMI in relation to listings made after the date hereof may differ from the historical information supplied above. No assurance is made that such information will be verified with respect to any particular applicant or borrower. Neither the indenture trustee nor holders of any Notes will have any contractual or other relationship with any borrower that would enable the indenture trustee or such holder to make any claim against such borrower for fraud or breach of any representation or warranty in relation to any false, incomplete or misleading information supplied by such borrower in relation to the relevant loan or Note.

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The borrower loans are not secured by any collateral or guaranteed or insured by any third party, and you must rely on Prosper Funding or a third-party collection agency to pursue collection against any borrower.

Borrower loans are unsecured obligations of borrower members. They are not secured by any collateral, and they are not guaranteed or insured by Prosper Funding, PMI or any third party or backed by any governmental authority in any way. Prosper Funding and its designated third-party collection agencies will, therefore, be limited in their ability to collect on borrower loans. Moreover, borrower loans are obligations of borrowers to Prosper Funding as successor to WebBank, not obligations to the holders of Notes. Holders of the Notes will have no recourse to the borrowers and no ability to pursue borrowers to collect payments under borrower loans. Holders of the Notes may look only to Prosper Funding for payment of the Notes. Furthermore, if a borrower fails to make any payments on the borrower loan, the holders of the Notes corresponding to that borrower loan will not receive any payments on their Notes. The holders of such Notes will not be able to pursue collection against the borrower and will not be able to obtain the identity of the borrower in order to contact the borrower about the defaulted borrower loan.

Some of the borrowers on the platform have “subprime” credit ratings, are considered higher than average credit risks, and may present a high risk of loan delinquency or default.

A “subprime” credit rating is traditionally defined as a FICO score below 640. Although Prosper Funding uses Experian’s Scorex PLUS credit score, not FICO, and thus cannot precisely identify which of the borrowers on the platform meet the traditional definition of “subprime,” there may be borrowers on the platform who have “subprime” credit ratings. Most of these borrowers are people who have had difficulty obtaining loans from other sources, including banks and other financial institutions, on favorable terms, or on any terms at all, due to credit problems, limited credit histories, adverse financial circumstances, or high debt-to-income ratios, but who have successfully borrowed through the platform on at least one prior occasion. Based on the historical performance of such second-time borrowers on the platform, Prosper Funding believes the risk profile of such loans is superior to that of loans made by traditional consumer finance lenders to borrowers who have “subprime” credit ratings. Nevertheless, acquiring Notes that are dependent on payments Prosper Funding receives on the corresponding borrower loans of such borrowers may present a high risk of loan delinquency or default. See “About the Platform—Risk Management—Credit Score” for more information.

Prior to the commencement of this offering, PMI operated the platform, facilitated the origination of loans by WebBank through the platform and issued and sold notes corresponding to those loans. Borrower loans originated and notes issued and sold by PMI are referred to as “PMI Borrower Loans” and “PMI Notes,” respectively. From July 13, 2009 to June 30, 2012 PMI facilitated 28,410 PMI Borrower Loans with an average original principal amount of $6,408 and an aggregate original principal amount of $182,038,534 on the platform. As of June 30, 2012, of these 28,410 PMI Borrower Loans, 71.6% were current or had not reached their first billing cycle, 19.0% were paid in full, 1.8% were 1- 30 days past due, 2.1% were more than 30 days past due, and 5.5% had defaulted (a PMI Borrower Loan is considered to have defaulted when it is more than 120 days past due or has been discharged in bankruptcy). In addition, of these 28,410 PMI Borrower Loans:

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3,074, or 11%, have been more than 15 days past due on at least one occasion;

2,480, or 9%, have been more than 30 days past due on at least one occasion;

2,013, or 7%, have been more than 60 days past due on at least one occasion;

There can be no assurance that historical loss rates for PMI Borrower Loans will be indicative of future loss rates or the likelihood of the delinquency or default on Prosper Funding’s borrower loans. See “About the Platform—Historical Performance of PMI Borrower Loans” and “Risk Factors—Risks Relating to Prosper Funding and PMI, the Platform and Prosper Funding’s Ability to Service the Notes” for more information.

There is a lower minimum credit score threshold for certain borrowers who have previously obtained a loan through the platform. A borrower whose credit score has declined, but who satisfies the lower credit score threshold, may present a greater risk of loan delinquency or default than a borrower with a higher credit score.

The minimum credit score required for an applicant to post a listing is 640, except for applicants who (i) previously obtained a borrower loan or a PMI Borrower Loan and paid off the loan in full, or (ii) are seeking a second loan while their first loan is still outstanding, and such loan is current and has not been more than thirty days past due at any time during the preceding twelve months. The minimum score required for any such second-time borrower is 600. A borrower who initially possessed a credit score of 640 or greater, but whose credit score has declined below 640, may present a greater risk of loan delinquency or default than a borrower whose credit score has not declined, even if the borrower whose credit score declined previously paid off a loan through the platform and maintains a credit score above 600.

There is no maximum debt-to-income ratio for applicants.

There is no maximum debt-to-income ratio (or “DTI”) for applicants who post listings on the platform. DTI is a measurement of a borrower’s ability to take on additional debt. Because there is no maximum DTI for applicants, borrower loans may have a higher risk of default than would otherwise be the case if there were a maximum DTI.

The credit information of an applicant may be inaccurate or may not accurately reflect the applicant’s creditworthiness, which may cause you to lose all or part of the price you paid for a Note.

PMI obtains applicant credit information from consumer reporting agencies, and assigns Prosper Ratings to listings based in part on the applicant’s credit score. A credit score that forms a part of the Prosper Rating assigned to a listing may not reflect the applicant’s actual creditworthiness because the credit score may be based on outdated, incomplete or inaccurate consumer reporting data. Similarly, the credit data taken from the applicant’s credit report and displayed in listings may also be based on outdated, incomplete or inaccurate consumer reporting data. Neither Prosper Funding nor PMI verifies the information obtained from the applicant’s credit report. Moreover, lender members do not, and will not, have access to financial statements of applicants or to other detailed financial information about applicants.

The Prosper Rating may not accurately set forth the risks of investing in the Notes and no assurances can be provided that actual loss rates for the Notes will come within the expected loss rates indicated by the Prosper Rating.

If Prosper Funding includes in a listing a Prosper Rating that is different from the Prosper Rating calculated by Prosper Funding or calculates the Prosper Rating for a listing incorrectly, and such error materially and adversely affects a series of Notes, Prosper Funding will cure the error, indemnify holders of such series of Notes or repurchase such series of Notes. Prosper Funding will not, however, have any indemnity or repurchase obligation under the Indenture, the Notes, the Lender Registration Agreement or any other agreement associated with the platform as a result of any other inaccuracy with respect to a listing’s Prosper Score or Prosper Rating. For example, the Prosper Rating for a listing could be inaccurate because the applicant’s credit report contained incorrect information. Similarly, the Prosper Rating does not reflect the substantial risk associated with the facts that (i) neither Prosper Funding nor PMI verifies much of the applicant information on which the Prosper Rating is based and (ii) much of such information is provided directly by the applicants themselves, who remain anonymous to potential Note purchasers. In addition, the Prosper Rating does not reflect Prosper Funding’s credit risk as a debtor (such credit risk exists even though, as the debtor on the Notes, Prosper Funding’s only obligation is to pay to the Note holders their pro rata shares of collections received on the related borrower loans net of applicable fees). If Prosper Funding repurchases any Notes, PMI will concurrently repurchase the related PMI Management Contract for zero consideration. Prosper Funding’s repurchase obligations under the Indenture, the Notes, the Lender Registration Agreement or any other agreement associated with the platform, and PMI’s concurrent repurchase of the related PMI Management Contracts, do not affect your rights under federal or state securities laws. A Prosper Rating is not a recommendation by Prosper Funding or PMI to buy, sell or hold a Note. In addition, no assurances can be provided that actual loss rates for the Notes will fall within the expected loss rates indicated by the Prosper Rating. The interest rates on the Notes might not adequately compensate Note purchasers for these additional risks. See “About the Platform—Note Repurchase and Indemnification Obligations” for more information.

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Investors who use the Quick Invest tool may face additional risk of funding loans that have been erroneously selected by Quick Invest.

Since it was first implemented by PMI in July 2011, the Quick Invest tool has experienced errors that affected 5,793 Notes out of the 750,021 Notes purchased through the Quick Invest tool since its inception. Of the affected lenders and Notes, 596 lenders and 1,971 Notes were affected by the erroneous selection by Quick Invest of all possible search criteria; 28 lenders and 2,517 Notes were affected by the erroneous use of inactive searches to purchase Notes; 23 lenders and 96 Notes were affected by an error that resulted in a search identifying every listing’s Prosper Score as a 10 (the best rating), regardless of the actual Prosper Score; and 160 lenders and 1,209 Notes were affected by an error that resulted in lenders who had multiple searches with overlapping criteria bidding on the same listing more than once even though the lender had also selected an option that was supposed to preclude them from investing in the same listing more than once.

In the event of any errors in Quick Invest that cause a lender to purchase a Note from Prosper Funding that he would not otherwise have purchased or that differs materially from the Note he would have purchased had there been no error, Prosper Funding will either repurchase the Note, indemnify the lender against losses suffered on that Note or cure the breach.

Some borrowers may use the platform to defraud lender members, which could adversely affect your ability to recoup your investment.

PMI uses identity and fraud checks with external databases to authenticate each borrower’s identity. Although it uses diligent efforts in this regard, there is a risk that the fraud checks could fail and fraud may occur. In addition, applicants may misrepresent their intentions regarding loan purpose or other information contained in listings, and neither Prosper Funding nor PMI verifies the majority of this information. While Prosper Funding will indemnify you or repurchase Notes in limited circumstances (including, e.g., a material default on the borrower loan resulting from verifiable identity theft), it is not obligated to indemnify you or repurchase a Note from you if your investment is not realized in whole or in part due to fraud (other than verifiable identity theft) in connection with a loan listing, or due to false or inaccurate statements or omissions of fact in a listing, whether in credit data, a borrower member’s representations, user recommendations, group affiliations or similar indicia of borrower intent and ability to repay the borrower loan. If Prosper Funding repurchases a Note, the repurchase price will be equal to the Note’s outstanding principal balance and will not include accrued interest. If Prosper Funding repurchases any Notes, PMI will concurrently repurchase the related PMI Management Contracts for zero consideration. See “About the Platform—Note Repurchase and Indemnification Obligations” for more information.

The fact that Prosper Funding has the exclusive right and ability to investigate claims of identity theft in the origination of loans creates a significant conflict of interest between Prosper Funding and the lender members.

Prosper Funding has the exclusive right to investigate claims of identity theft and determine, in its sole discretion, whether verifiable identity theft has occurred. Verifiable identity theft triggers an obligation by Prosper Funding to repurchase a Note or indemnify a Note holder. As Prosper Funding is the sole entity with the ability to investigate and determine verifiable identity theft, which triggers its repurchase or indemnification obligation, a conflict of interest exists. Lender members rely solely on Prosper Funding to investigate incidents that might require it to indemnify them or repurchase a loan. The denial of a claim under Prosper Funding’s identity theft guarantee would save Prosper Funding from its indemnification or repurchase obligation. See “About the Platform—Note Repurchase and Indemnification Obligations” for more information.

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Prosper Funding does not have significant historical performance data about performance on the borrower loans. Loss rates on the borrower loans may increase and prior to investing you should consider the risk of non-payment and default.

Prosper Funding is in the early stages of its development and has a limited operating history. It did not offer borrower loans through the platform prior to this offering. PMI began offering PMI Borrower Loans through the platform in February of 2006, but the performance of PMI Borrower Loans may not be indicative of the future performance of Prosper Funding’s borrower loans. Due to Prosper Funding’s limited operational history, it does not have significant historical data regarding the performance of the borrower loans, and it does not yet know what the long-term loan loss experience will be. The estimated loss rates displayed on Prosper Funding’s website and used to determine the Prosper Rating have been developed from PMI’s loss histories on PMI Borrower Loans. Accordingly, borrower loans originated on the platform may default more often than similar PMI Borrower Loans have defaulted in the past, which increases the risk of investing in the Notes.

If payments on the corresponding borrower loans relating to your Notes become more than 30 days overdue, it is likely you will not receive the full principal and interest payments that you expect to receive on your Notes, and you may not recover your original purchase price.

If a borrower fails to make a required payment on a borrower loan within 30 days of the due date, PMI will pursue reasonable collection efforts in respect of the borrower loan. Referral of a delinquent borrower loan to a collection agency within five (5) business days after it becomes thirty days past due will be considered reasonable collection efforts.

If PMI refers a borrower loan to a collection agency, it will not have any other obligation to attempt to collect that borrower loan. PMI also may handle collection efforts in respect of a delinquent borrower loan directly as servicer of the loans pursuant to the Administration Agreement. If payment amounts on a delinquent borrower loan are received from a borrower more than 30 days after their due date, and the loan has been referred to an outside collection agency, that collection agency will retain a percentage of that payment as a fee before any principal or interest becomes payable to you. Collection fees range from 17% to 30% of recovered amounts.

For some non-performing borrower loans, PMI will not be able to recover some or all of the unpaid loan balance and, as a result, a lender member who has purchased a corresponding Note will receive little, if any, of the unpaid principal and interest payable under the Note. You must rely on the collection efforts of PMI or the applicable collection agency to which such borrower loans are referred. You are not permitted to attempt to collect payments on the borrower loans in any manner.

Loss rates on the borrower loans may increase as a result of economic conditions beyond Prosper Funding or PMI’s control and beyond the control of the borrower member.

Borrower loan loss rates may be significantly affected by economic downturns or general economic conditions beyond Prosper Funding or PMI’s control and beyond the control of individual borrowers. In particular, loss rates on borrower loans may increase due to factors such as prevailing interest rates, the rate of unemployment, the level of consumer confidence, residential real estate values, the value of the U.S. dollar, energy prices, changes in consumer spending, the number of personal bankruptcies, disruptions in the credit markets and other factors.

In the unlikely event that Prosper Funding receives payments on the borrower loans relating to your Notes after the final maturity date, you will not receive payments on your Notes after maturity.

Each Note will mature on the initial maturity date, unless any principal or interest payments in respect of the corresponding borrower loan remain due and payable to Prosper Funding upon the initial maturity date, in which case the maturity of the Note will be automatically extended to the final maturity date. If there are any amounts under the corresponding borrower loan still due and owing to Prosper Funding after the final maturity date, Prosper Funding will have no further obligation to make payments on the related Notes, even if it receives payments on the corresponding borrower loan after final maturity.

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The borrower loans do not restrict borrowers from incurring additional unsecured or secured debt, nor do they impose any financial restrictions on borrowers during the term of the borrower loan, which may impair your ability to receive the full principal and interest payments that you expect to receive on a Note.

If a borrower incurs additional debt after the date of the borrower loan, the additional debt may impair the ability of that borrower to make payments on his or her borrower loan and your ability to receive the principal and interest payments that you expect to receive on a corresponding Note. In addition, the additional debt may adversely affect the borrower’s creditworthiness generally, and could result in the financial distress, insolvency, or bankruptcy of the borrower. To the extent that the borrower has or incurs other indebtedness and cannot pay all of his or her indebtedness, the borrower may choose to make payments to other creditors, rather than to Prosper Funding.

To the extent borrowers incur other indebtedness that is secured, such as a mortgage, a home equity line or an auto loan, the ability of the secured creditors to exercise remedies against the assets of the borrower may impair the borrower’s ability to repay the borrower loan on which your Note is dependent for payment. Borrowers may also choose to repay obligations under secured indebtedness or other unsecured indebtedness before repaying borrower loans because there is no collateral securing the borrower loans. A lender member will not be notified if a borrower incurs additional debt after the date a loan listing is posted.

A borrower may request that his or her bank “chargeback” a payment on a borrower loan upon which a Note is dependent for payment and request a refund on that payment, resulting in a delinquency on the payment and a possible negative cash balance in your lender member account.

A borrower chargeback is a process by which a borrower who has made a payment on a borrower loan has his or her bank cancel the payment or request a refund of that payment. Prosper Funding withholds payments to lender members up to six business days after a related borrower payment is initiated. If the chargeback occurs between six and 60 days after the initiation of payment, you must rely on Prosper Funding to contest the chargeback if it deems it appropriate. If a borrower successfully processes a chargeback between six and 60 days after initiation of payment, such payment will be deducted from your lender member account, and if you have withdrawn funds in the interim, a negative cash balance may result. Amounts received on borrower loans corresponding to your Notes payments and deposited into your lender member account are subject to set-off against any negative balance or shortfall in your lender member account. In 2011, 367 borrower payments in the aggregate amount of approximately $73,000 were subject to chargebacks, which resulted in such payments being deducted from the accounts of the corresponding Note holders. See “About the Platform—Structure of Lender Member Accounts and Treatment of Lender Member Balances” for more information.

Peer-to-peer lending is a new lending method and the platform has a limited operating history. Borrowers may not view or treat their obligations to Prosper Funding as having the same significance as loans from traditional lending sources, such as bank loans.

The investment return on the Notes depends on borrowers fulfilling their payment obligations in a timely and complete manner under the corresponding borrower loan. Borrowers may not view peer-to-peer lending obligations originated on the platform as having the same significance as other credit obligations arising under more traditional circumstances, such as loans from banks or other commercial financial institutions. If a borrower neglects his or her payment obligations on a borrower loan upon which payment of your Note is dependent or chooses not to repay his or her borrower loan entirely, you may not be able to recover any portion of your investment in a Note.

The platform may fail to comply with applicable law, which could limit Prosper Funding and PMI’s ability to collect on borrower loans.

The borrower loans are subject to federal and state consumer protection laws. The platform may not always be, and the equivalent platform previously operated by PMI may not always have been, in compliance with these laws. Failure to comply with the laws and regulatory requirements applicable to the platform may, among other things, limit Prosper Funding’s, PMI’s or a collection agency’s ability to collect all or part of the principal of or interest on borrower loans. See “Government Regulation—Regulation and Consumer Protection Laws” for more information.

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PMI regularly reviews the requirements of these laws and take measures aimed at ensuring that the borrower loans originated on the platform meet the requirements of all applicable laws. However, determining compliance with all applicable laws is a complex matter and it is possible that PMI’s determination may be inaccurate or incorrect. Also, changes in law, either due to court decisions, regulatory interpretations or rulings, or new legislation, may adversely affect the collectability of a borrower loan.

In general, the borrower loans do not contain any cross-default or similar provisions. If a borrower defaults on any of his or her other debt obligations, Prosper Funding and PMI’s ability to collect on the borrower loan on which your Notes are dependent for payment may be substantially impaired.

The borrower loans do not contain cross-default provisions. A cross-default provision makes a default under certain debt of a borrower an automatic default on other debt of that borrower. Because the borrower loans do not contain cross-default provisions, a borrower’s loan will not be placed automatically in default upon that borrower’s default on any of the borrower’s other debt obligations. If a borrower defaults on debt obligations owed to a third party and continues to satisfy the payment obligations under the borrower loan, the third party may seize the borrower’s assets or pursue other legal action against the borrower before the borrower defaults on the borrower loan.

Borrowers may seek the protection of debtor relief under federal bankruptcy or state insolvency laws, which may result in the nonpayment of your Notes.

Borrowers may seek protection under federal bankruptcy law or similar laws. If a borrower files for bankruptcy (or becomes the subject of an involuntary petition), a stay will go into effect that will automatically put any pending collection actions on the borrower loan on hold and prevent further collection action absent bankruptcy court approval. If Prosper Funding receives notice that a borrower has filed for protection under the federal bankruptcy laws, or has become the subject of an involuntary bankruptcy petition, it will put the borrower’s loan account into “bankruptcy status.” When this occurs, Prosper Funding terminates automatic monthly ACH debits on borrower loans and neither Prosper Funding nor PMI will undertake collection activity without bankruptcy court approval. Whether any payment will ultimately be made or received on a borrower loan after a bankruptcy status is declared depends on the borrower’s particular financial situation. In most cases, however, unsecured creditors such as Prosper Funding receive nothing, or only a fraction of their outstanding debt. See “About the Platform—Loan Servicing and Collection” for more information.

Federal law entitles borrowers who enter active military service to an interest rate cap and certain other rights that may inhibit the ability to collect on loans and reduce the amount of interest paid on the corresponding Notes.

Federal law provides borrowers on active military service with rights that may delay or impair Prosper Funding and PMI’s ability to collect on a borrower loan corresponding to your Note. The Servicemembers Civil Relief Act, or “SCRA,” requires that the interest rate on preexisting debts, such as borrower loans, be set at no more than 6% while the qualified service member or reservist is on active duty. A holder of a Note that is dependent on such a borrower loan for payment will not receive the difference between 6% and the original stated interest rate for the borrower loan during any such period. The SCRA law also permits courts to stay proceedings and execution of judgments against service members and reservists on active duty, which may delay recovery on any borrower loans in default, and, accordingly, payments on the corresponding Notes. If there are any amounts under such a borrower loan still due and owing to Prosper Funding after the final maturity of the corresponding Notes, Prosper Funding will have no further obligation to make payments on the Notes, even if it receives payments on the borrower loan after the final maturity of the Notes. Prosper Funding and PMI do not take military service into account in assigning a Prosper Rating to loan listings. In addition, as part of the borrower registration process, neither Prosper Funding nor PMI requests borrower members to confirm if they are qualified service members or reservists within the meaning of the SCRA. See “Government Regulation—Regulation and Consumer Protection Laws—Servicemembers Civil Relief Act” for more information.

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The death of a borrower may substantially impair your ability to recoup the full purchase price of Notes or to receive the interest payments that you expect to receive on the Notes.

If a borrower dies while his or her loan is still outstanding, generally, PMI will seek to work with the executor of the borrower’s estate to obtain repayment of the loan. However, the borrower’s estate may not contain sufficient assets to repay the loan, or the related executor or trustee may prioritize repayment of other creditors. In addition, if a borrower dies near the end of the term of his or her loan, it is unlikely that any further payments will be made on the corresponding Notes, because the time required for the probate of the borrower’s estate will probably extend beyond the final maturity date of the Notes.

Risks Inherent in Investing in the Notes

The Notes are special, limited obligations of Prosper Funding only and are not directly secured by any collateral or guaranteed or insured by PMI or any third party.

The Notes will not represent an obligation of borrowers, PMI or any other party except Prosper Funding, and are special, limited obligations of Prosper Funding. The Notes are not directly secured by any collateral and are not guaranteed or insured by PMI, any governmental agency or instrumentality or any third party. Although Prosper Funding has granted the indenture trustee, for the benefit of the Note holders, a security interest in all of the borrower loans and all payments and proceeds received by Prosper Funding on the borrower loans and in the bank account in which the borrower loan payments are deposited, the Note holders do not themselves have a security interest in the borrower loans or the right to payment thereunder. If an event of default under the indenture were to occur, the Note holders would be dependent on the indenture trustee’s ability to realize on the collateral and make payments on the Notes in the manner contemplated by the indenture. In addition, although Prosper Funding will take all actions that it believes are required under applicable law to perfect the security interest of the indenture trustee in the collateral, if its analysis of the required actions is incorrect and/or if it fails timely to take any required action, the indenture trustee’s security interest may not be effective and holders of the Notes could be required to share the collateral (and any proceeds thereof) with Prosper Funding’s other creditors, or, if a bankruptcy court were to order the substantive consolidation of PMI and Prosper Funding (as described below), PMI’s creditors.

Prosper Funding is not obligated to indemnify a Note holder or repurchase any Notes except in limited circumstances.

Prosper Funding is not obligated to indemnify a Note holder or repurchase any Note under the Indenture, the Notes, the Lender Registration Agreement or any other agreement associated with the platform except in limited circumstances, including (1) a material default occurring on a Note as a result of verifiable identity theft, (2) the Note was purchased as a result of an error in the Quick Invest search tool, (3) a borrower loan materially failing to comply with applicable federal and state law at origination, (4) an error by Prosper Funding in the calculation or assignment of the Prosper Rating posted in the related listing, or (5) any other breach of Prosper Funding’s representations and warranties under the lender registration agreement. Under this agreement, in the event of a breach of the type described in clause (1), Prosper Funding is required to repurchase the Note or indemnify the Note holder; in the event of any breach described in clause (2) that causes a lender member to purchase a Note from Prosper Funding that he or she otherwise would not have purchased or to purchase a Note from Prosper Funding that is materially different from the Note he or she otherwise would have purchased, Prosper Funding will either cure the breach, repurchase the Note or indemnify the lender member against any losses resulting from the purchase of the Note; and in the event of any breach described in clauses (3) through (5) that materially and adversely affects a lender member’s interest in a Note such lender member purchased from Prosper Funding, Prosper Funding will either cure the breach, repurchase the Note or indemnify and hold the lender member harmless against losses resulting from the breach. Prosper Funding is not, however, obligated to repurchase a Note from a lender member if his or her investment is not realized in whole or in part due to fraud other than identity theft, or due to false or inaccurate statements or omissions of fact in a listing, whether in credit data, borrower representations, user recommendations, group affiliations or similar indicia of borrower intent and ability to repay the loan. If Prosper Funding repurchases any Notes, PMI will concurrently repurchase the related PMI Management Contracts for zero consideration.

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Prosper Funding might incur indemnification and repurchase obligations that exceed its projections, in which case it may not have sufficient capital to meet its indemnification and repurchase obligations.

Before Prosper Funding commences this offering, PMI will make an additional cash contribution to Prosper Funding of between $3 million and $6 million, which Prosper Funding believes will be sufficient to meet its reasonably anticipated indemnification and repurchase obligations during the first six months of operations. After Prosper Funding’s first six months of operations, it believes its fee income will be sufficient to cover such obligations. In determining Prosper Funding’s expected capital needs with respect to indemnification and repurchase obligations, it reviewed the history of such obligations incurred by PMI. From the inception of the platform in November 2005 through June 30, 2012, approximately $361 million of loans were originated through the platform and PMI repurchased approximately $587,560, or 0.16%, of corresponding PMI Notes. As of June 30, 2012, approximately 121,640 loans were indemnified. ��Prosper Funding believes this approach to estimating its future repurchase and indemnification obligations gives it a reasonable basis to conclude that it will be adequately capitalized to meet such obligations. Nonetheless, there can be no assurance that if it is obligated to repurchase a Note or indemnify a Note holder, that it will be able to meet its repurchase or indemnification obligation. If Prosper Funding is unable to meet its indemnification and repurchase obligations, you may lose all of your investment in the Note.

If you decide to invest through the platform and concentrate your investment in a single Note, you may increase your risk of borrower defaults.

Your expected return on your investment in the Notes depends on the performance of the borrowers under the corresponding borrower loans. There are a wide range of Prosper Ratings and listings on the platform and Prosper Funding expects some borrowers to default on their loans. If you decide to invest through the platform and concentrate your investment in a single Note, your entire return will depend on the performance of a single borrower loan. For example, if you plan to purchase $200 of Notes, and choose to invest the entire $200 in a single Note instead of in eight $25 Notes corresponding to the borrower loans of eight different borrowers, your entire $200 investment will depend on the performance of a single borrower loan. It may be desirable to diversify your portfolio in order to reduce the risk that you could lose your entire investment due to a single default, or a small number of defaults. However, diversification does not eliminate the risk that you may lose some, or all, of your investment in the Notes.

The platform allows a borrower member to prepay a borrower loan at any time without penalty. Borrower loan prepayments will extinguish or limit your ability to receive additional interest payments on a Note.

Borrower loan prepayment occurs when a borrower decides to pay some or all of the principal amount on a borrower loan earlier than originally scheduled. Borrowers may decide to prepay all or a portion of the remaining principal amount at any time without penalty. In the event of a prepayment of the entire remaining unpaid principal amount of a borrower loan on which your Notes are dependent for payment, you will receive your share of such prepayment but further interest will not accrue on such borrower loan or on your Note after the date on which the payment is made. If the borrower prepays a portion of the remaining unpaid principal balance, the term of the borrower loan will not change, but interest will cease to accrue on the prepaid portion, and you will not receive all of the interest payments that you originally expected to receive on your Notes. In addition, you may not be able to find a similar rate of return on another investment at the time at which the borrower loan is prepaid. Prepayments are subject to Prosper Funding’s servicing fee, even if the prepayment occurs immediately after issuance of your Note.

Prevailing interest rates may change during the term of your Notes. If this occurs, you may receive less value from your purchase of the Note in comparison to other ways you may invest your money. Additionally, borrowers may prepay their borrower loans due to changes in interest rates, and you may not be able to redeploy the amounts you receive from prepayments in a way that offers you the return you expected to receive from the Notes.

The borrower loans on which the Notes are dependent for payment bear fixed, not floating, rates of interest. If prevailing interest rates increase, the interest rates on Notes you purchase might be less than the rate of return you could earn if you invested the purchase price in a different investment.

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PMI may not set appropriate interest rates for borrower loans.

If PMI sets interest rates for borrower loans too low, lender members may not be compensated appropriately for the level of risk that they are assuming in purchasing a Note, while setting the interest rate too high may increase the risk of non-payment. In either case, failure to set rates appropriately may adversely impact the ability of lender members to receive returns on their Notes that are commensurate with the risks they have assumed in acquiring such Notes.

The PMI Management Contracts attached to the Notes will not comprise collateral for the Notes nor generate any funds that will be payable to the holders of Notes.

There are no payment obligations on the part of PMI or any third party under or in relation to the PMI Management Contracts that are in any way related to borrower obligations in relation to the loans or in any way related to Prosper Funding’s payment obligations in relation to the Notes. The PMI Management Contracts attached to the Notes will not comprise collateral for the Notes nor guarantees of any loans or Notes, nor generate any funds or proceeds that will be payable to Prosper Funding, the indenture trustee or holders of Notes in relation to any loans or Notes. Holders of Notes will have no recourse to PMI or its assets in relation to payments on loans or Notes. If Prosper Funding repurchases any Notes, PMI will concurrently repurchase the related PMI Management Contract for zero consideration. Prosper Funding’s repurchase obligations under the Indenture, the Notes, the Lender Registration Agreement or any other agreement associated with the platform, and PMI’s concurrent repurchase of the related PMI Management Contracts, do not affect your rights under federal or state securities laws.

The Securities will not be listed on any securities exchange, will not be transferable except through the Note Trader platform, and can be held only by Prosper Funding’s lender members. You should be prepared to hold the Securities you purchase until they mature.

The Securities will not be listed on any securities exchange. All Securities must be held by Prosper Funding’s lender members. The Securities will not be transferable except through the Note Trader platform and there can be no assurance that a market for Securities will continue to develop on the Note Trader platform, or that the Note Trader platform will continue in operation. Therefore, lender members must be prepared to hold their Securities to maturity. See “About the Platform—Note Trader Platform” for more information.

If the Note Trader platform fails to develop, or if the Note Trader platform develops but you cannot find a purchaser for the Notes that you wish to sell, you will be forced to hold the Notes for their remaining term.

Prosper Funding and PMI cannot guarantee that the Note Trader platform will continue to develop. A Note offered for sale on the Note Trader platform must be purchased in its entirety by a single lender member, and Notes with a high outstanding principal balance may be more difficult to sell due to the smaller number of lender members with the ability to purchase such Notes.

If you choose to post your Notes for sale on the Note Trader platform, you may not realize the expected return on your investment due to changes in the creditworthiness of the borrower under the corresponding borrower loan.

The ability to sell your Note on the Note Trader platform does not guarantee that you will be able to find a lender member willing to buy the Note at a price acceptable to you, or at all. If the borrower becomes delinquent in payments under the corresponding borrower loan upon which your Note is dependent for payment, your ability to sell the Note on the Note Trader platform will be substantially impaired. You may have to offer the Note for sale at a substantial discount, and there is no guarantee that you will receive the expected value of the Note or any value at all. Additionally, lender members may be less willing to bid for and purchase your Note if prevailing interest rates have changed or other investing activities have proven more attractive while you have held the Note.

You do not earn interest on funds held in your lender member account.

Your lender member account represents an interest in a pooled bank account that does not earn interest. See “About the Platform—Structure of Lender Member Accounts and Treatment of Lender Member Balances” for more information.

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The U.S. federal income tax consequences of an investment in the Notes are uncertain.

There are no statutory provisions, regulations, published rulings or judicial decisions that directly address the characterization of the Notes or instruments similar to the Notes for U.S. federal income tax purposes. However, although the matter is not free from doubt because payments on the Notes are dependent on payments on the corresponding borrower loan, Prosper Funding intends to treat the Notes as its debt instruments that have original issue discount (“OID”) for U.S. federal income tax purposes. Where required, Prosper Funding intends to file information returns with the IRS in accordance with such treatment unless there is a change or clarification in the law, by regulation or otherwise, that would require a different characterization of the Notes. You should be aware, however, that the U.S. Internal Revenue Service (“IRS”) is not bound by Prosper Funding’s characterization of the Notes and the IRS or a court may take a different position with respect to the Notes’ proper characterization. For example, the IRS could determine that, in substance, each lender member owns a proportionate interest in the corresponding loan for U.S. federal income tax purposes or, for example, the IRS could instead treat the Notes as a different financial instrument (including an equity interest or a derivative financial instrument). Any different characterization could significantly affect the amount, timing, and character of income, gain or loss recognized in respect of a Note. For example, if the Notes are treated as Prosper Funding’s equity, (1) Prosper Funding would be subject to U.S. federal income tax on income, including interest, accrued on the corresponding loans but would not be entitled to deduct interest or OID on the Notes, and (2) payments on the Notes would be treated by the holder for U.S. federal income tax purposes as dividends (that may be ineligible for reduced rates of U.S. federal income taxation or the dividends-received deduction) to the extent of Prosper Funding’s earnings and profits as computed for U.S. federal income tax purposes. A different characterization may significantly reduce the amount available to pay interest on the Notes. You are strongly advised to consult your own tax advisor regarding the U.S. federal, state, local and non-U.S. tax consequences of the purchase, ownership, and disposition of the Notes (including any possible differing treatments of the Notes).

Prosper Funding’s ability to pay principal and interest on a Note may be affected by its ability to match the timing of its income and deductions for U.S. federal income tax purposes.

You should be aware that Prosper Funding’s ability to pay principal and interest on a Note may be affected by its ability, for U.S. federal income tax purposes, to match the timing of income it receives from a corresponding loan that it holds and the timing of deductions that it may be entitled to in respect of payments made on the Notes that it issues. For example, if the Notes are treated as contingent payment debt instruments for U.S. federal income tax purposes but the corresponding borrower loans are not, there could be a potential mismatch in the timing of Prosper Funding’s income and deductions for U.S. federal income tax purposes, and Prosper Funding’s resulting tax liabilities could affect its ability to make payments on the Notes.

Participation in the funding of loans could be viewed as creating a conflict of interest.

As is the practice with other peer-to peer lending companies, including Prosper Funding and PMI’s competitor, LendingClub, from time to time, Prosper Funding or PMI may fund portions of qualified loan requests on the platform and hold any Notes purchased as a result of such funding for its own individual account. Even though Prosper Funding and PMI will participate in loans on the platform under the same terms and conditions and through the use of the same information that is made available to other potential lenders on the platform, such participation may be perceived as involving a conflict of interest. For example, Prosper Funding or PMI’s funding of a loan may cause the loan to fund, and in some cases, fund faster, than it would fund in the absence of Prosper Funding or PMI’s participation, which could benefit Prosper Funding to the extent that it ensures that Prosper Funding generates the revenue associated with the loan.

As of June 30, 2012, PMI had purchased PMI notes in the aggregate amount of approximately $147,000. In addition, as of June 30, 2012, PMI’s executive officers, directors, affiliates and 5% shareholders had purchased PMI notes in the aggregate amount of $4,761,343. The PMI notes were obtained on terms and conditions that were not more favorable than those obtained by other lender members of PMI. Of the total aggregate amount of PMI notes purchased by PMI’s executive officers, directors and affiliates as of June 30, 2012, approximately 4.6% of principal has been charged off, compared to approximately 15% of principal charged off for all loans originated as of June 30, 2012.

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Risks Related to Prosper Funding and PMI, the Platform and Prosper Funding and PMI’s Ability to Service the Notes

PMI, in its capacity as servicer, has the authority to waive or modify the terms of a borrower loan without the consent of the Note holders.

Pursuant to the Administration Agreement, PMI is obligated to use commercially reasonable efforts to service and collect the borrower loans in accordance with industry standards. Subject to that obligation, the Administration Agreement grants PMI the authority to waive or modify any non-material term of a borrower loan or consent to the postponement of strict compliance with any such term or in any manner grant a non-material indulgence to any borrower. In addition, if a borrower loan is in default, or PMI determines default is reasonably foreseeable, or PMI determines such action is consistent with its servicing obligation, the Administration Agreement grants PMI the authority to waive or modify a material term of a borrower loan, to accept payment of an amount less than the principal balance in final satisfaction of a loan and to grant any indulgence to a borrower, provided that PMI has reasonably and prudently determined that such action will not be materially adverse to the interests of the relevant Note holders. If PMI approves a modification to the terms of any borrower loan it must promptly notify the corresponding Note holders by e-mail of the material terms of such modification and the effect such modification will have on their Notes.

PMI faces a contingent liability for securities law violations in respect of PMI Borrower Loans sold to its lender members from inception until October 16, 2008. This contingent liability may impair its ability to perform its obligations under the Administration Agreement.

PMI Borrower Loans sold to PMI’s lender members through PMI’s platform from November 2005 until October 16, 2008 may be viewed as involving an offering of securities that was not registered or qualified under federal or state securities laws.

In November of 2008, the SEC instituted cease and desist proceedings, pursuant to Section 8A of the Securities Act, against PMI. In connection with such proceedings, PMI agreed to a settlement with the SEC and consented to the entry of a Cease and Desist order, in which PMI neither admitted nor denied liability, which was approved by the SEC on November 20, 2008. The Cease and Desist order included a finding that PMI violated the registration requirements of the Securities Act, and required that PMI cease and desist from committing or causing any violations or any future violations.

On April 21, 2009, PMI and the North American Securities Administrators Association (“NASAA”) reached agreement on the terms of a model consent order between PMI and the states in which PMI offered notes for sale prior to November 2008. The consent order involves payment by PMI of up to an aggregate of $1.0 million in penalties, which have been allocated among the states based on PMI’s loan sale transaction volume in each state prior to November 2008. A state that enters into a consent order receives its portion of the $1 million in exchange for its agreement to terminate, or refrain from initiating, any investigation of PMI’s note sale activities prior to November 2008. Penalties are paid promptly after a state enters into a consent order. NASAA has recommended that each state enter into a consent order. However, no state is obliged to do so, and there is no deadline by which a state must make its decision. PMI is not required to pay any portion of the penalty to those states that do not elect to enter into a consent order. If a state does not enter into a consent order, it is free pursue its own remedies against PMI, subject to any applicable statute of limitations. As of June 30, 2012, PMI had entered into consent orders with 33 states and has paid an aggregate of $436,717 in penalties to those states.

As of June 30, 2011 and June 30, 2012, PMI had accrued approximately $277,000 and $277,000, respectively, in connection with the contingent liability associated with the states that have not entered into consent orders, in accordance with ASC Topic 450, Contingencies. The methodology applied to estimate the accrual was to divide the $1,000,000 maximum fee pro-rata by state using PMI’s originations from inception through November 2008. A weighting was then applied by state to each state that has not entered into a consent order to assign a likelihood that the penalty will be claimed. In estimating the probability of a claim being made by a state, PMI considered factors such as the standard terms of the consent order; whether the state ever gave any indication of concern regarding the sale of promissory notes through PMI’s prior platform; the probability of a state electing not to enter into a consent order in order to pursue its own litigation against PMI; whether the penalty is sufficient to compensate a state for the cost of processing the consent order; and finally the impact that current economic conditions have had on state governments. PMI will continue to evaluate this accrual and related assumptions as new information becomes known.

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On November 26, 2008, plaintiffs, Christian Hellum, William Barnwell and David Booth, individually and on behalf of all other plaintiffs similarly situated, filed a class action lawsuit against PMI, and certain of its executive officers and directors in the Superior Court of California, County of San Francisco, California. The suit was brought on behalf of all loan note purchasers on PMI’s online lending platform from January 1, 2006 through October 14, 2008. The lawsuit alleges that PMI offered and sold unqualified and unregistered securities in violation of the California and federal securities laws. The lawsuit seeks class certification, damages and the right of rescission against PMI and the other named defendants, as well as treble damages against PMI and the award of attorneys’ fees, experts’ fees and costs, and pre-judgment and post-judgment interest.

On February 25, 2011, the plaintiffs filed a Third Amended Complaint, which removed David Booth as a plaintiff and added Brian Russom and Michael Del Greco as plaintiffs. The new plaintiffs are representing the same putative class and prosecuting the same claims as the previously named plaintiffs. On January 26, 2012, the court issued a tentative ruling granting the plaintiffs’ motion for class certification.

PMI’s insurance carrier with respect to the class action lawsuit, Greenwich Insurance Company (“Greenwich”), denied coverage. On August 21, 2009, PMI filed suit against Greenwich in the Superior Court of California, County of San Francisco, California. The lawsuit sought a declaration that PMI was entitled to coverage under its policy with Greenwich for losses arising out of the class action lawsuit as well as damages and the award of attorneys’ fees and pre-judgment and post-judgment interest.

On January 26, 2011, the court issued a final statement of decision finding that Greenwich had a duty to defend the class action lawsuit, and requiring that Greenwich pay PMI's past and future defense costs in the class action suit up to $2 million. Greenwich subsequently made payments to PMI in the amount of $2 million to reimburse PMI for the defense costs it had incurred in the class action suit. As a result, Greenwich has now satisfied its obligations with respect to PMI’s defense costs for the Hellum suit, with the exception of $142,584 in pre-judgment interest that Greenwich will be required to pay to PMI when a final judgment has been entered in the suit and all appeals have been exhausted.

On July 1, 2011, PMI and Greenwich entered into a Stipulated Order of Judgment pursuant to which PMI agreed to dismiss its remaining claims against Greenwich. On August 12, 2011, Greenwich filed a notice of appeal of the court's decision regarding Greenwich’s duty to defend up to $2 million. On July 16, 2012, the California Court of Appeal affirmed the trial court’s decision.

PMI intends to vigorously defend the class action lawsuit. PMI cannot, however, presently determine or estimate the final outcome of the lawsuit, and there can be no assurance that it will be finally resolved in PMI’s favor. If the class action lawsuit is not resolved in PMI’s favor, PMI might be obliged to pay damages, and might be subject to such equitable relief as a court may determine.

As a result of PMI’s prior operations, a lender member who holds a loan originated on the platform prior to October 15, 2008 may be entitled to rescind her purchase and be paid the unpaid principal amount of her borrower loan, plus statutory interest. PMI has not recorded an accrued loss contingency in respect of this contingent liability, although it intends to continue to monitor the situation. Generally, the federal statute of limitations for noncompliance with the requirement to register securities under the Securities Act is one year from the violation; however, the statute of limitations periods under state laws may extend for a longer period of time. Under the Administration Agreement, PMI is generally responsible for overseeing the operation of the platform on Prosper Funding’s behalf. See “Summary of Indenture, Form of Notes and Administration Agreement—Administration Agreement.” If a significant number of PMI’s former lender members sought rescission, or if the class action securities lawsuit is successful, PMI’s ability to perform its obligations under the Administration Agreement may be adversely affected and, in such event, Prosper Funding’s ability to continue to make payments on the Notes could be materially impaired.

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PMI has incurred operating losses since inception and anticipates that it will continue to incur net losses through at least December 31, 2012.

PMI has incurred operating losses since its inception and anticipates that it will continue to incur net losses for a number of years as it grows its business. For the six months ended June 30, 2012 and 2011 PMI had negative cash flows from operations of $8.4 million and $3.8 million, respectively. Additionally, from its inception through June 30, 2012, PMI had an accumulated deficit of $68.4 million.

PMI has financed its operations to date primarily with proceeds from the sale of equity securities. At June 30, 2012, PMI had approximately $11.1 million in unrestricted cash and cash equivalents and short term investments. PMI is dependent upon raising additional capital or debt financing to fund its current operating plan. PMI’s failure to obtain sufficient debt and equity financings and, ultimately, to achieve profitable operations and positive cash flow from operations could adversely affect its ability to perform its obligations under the Administration Agreement and, in such event, Prosper Funding’s ability to continue to make payments on the Notes could be materially impaired.

Prosper Funding and PMI both have limited operating histories. As online companies in the early stages of development, Prosper Funding and PMI face increased risks, uncertainties, expenses and difficulties.

As the number of borrowers, lender members and borrower loans originated on the platform increases, PMI will need to increase its facilities, personnel and infrastructure in order to accommodate the anticipated greater obligations on it under the Administration Agreement as the result of the anticipated greater servicing obligations and demands on the platform. PMI must constantly add new hardware and update its software and the platform, expand customer support services, and add new employees to maintain the operations of the platform as well as to satisfy its servicing obligations on the borrower loans and the Notes and its other obligations under the Administration Agreement. If PMI is unable to increase the capacity of the platform and maintain the necessary infrastructure to perform its duties under the Administration Agreement, Prosper Funding, or one or more other third-party service providers engaged by Prosper Funding, will have to perform the duties otherwise performed by PMI, and you may experience delays in receipt of payments on your Notes and periodic downtime of the platform.

Prosper Funding is a new company and has no independent operating history.

Prosper Funding is a newly formed limited purpose vehicle with no independent operating history. Before Prosper Funding commences this offering, PMI will make an additional cash contribution to Prosper Funding of between $3 million and $6 million, which Prosper Funding believes will be sufficient to meet its reasonably anticipated obligations during the first six months of operations, including its indemnification and repurchase obligations. Under the Administration Agreement, Prosper Funding is entitled to receive a license fee from PMI for granting PMI a non-exclusive, worldwide license to access and use the platform. The license fee is payable on the last business day of each month and shall equal the product of $150.00 and the number of borrower listings posted on the platform on any given month, provided that on the last business day of each calendar year during the term of the license on or after 2013, PMI shall also pay Prosper Funding an additional amount equal to zero or the difference, if positive, between $2,500,000 and the aggregate amounts paid through such date in respect of such monthly license fee amounts already paid through such date during such calendar year. In addition, Prosper Funding will earn servicing fees in relation to the servicing of the borrower loans and Notes that it will retain from collections on the borrower loans. The licensing fees and servicing fees received by Prosper Funding are projected to substantially exceed the fees it will pay to PMI for services rendered by PMI under the Administration Agreement and its other current obligations pursuant to its agreements with other third parties. After Prosper Funding’s first six months of operations, it believes this fee income will be sufficient to cover its reasonably anticipated obligations. While Prosper Funding believes that it will be adequately capitalized to meet its foreseeable obligations, and that its fee income will be sufficient to meet its ongoing operating costs, its financial resources will be limited and could prove to be insufficient. In addition, Prosper Funding has no employees and will rely on PMI, as servicer, or other third-party service providers, to perform most of its day-to-day operations. While Prosper Funding generally expects the platform to present the same risks it presented when PMI operated the platform, the lack of Prosper Funding’s own employees, its limited operating history, and capitalization that is less than that of PMI could make it more difficult for Prosper Funding to operate at a level that will be sustainable. Absent the services to be provided to Prosper Funding by PMI pursuant to the Administration Agreement, Prosper Funding’s risk management process, ability to predict loss rates and the general operation of the platform would have a thinner margin for error than does PMI. See “Summary of Indenture, Form of Notes and Administration Agreement—Administration Agreement” for more information.

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The market in which Prosper Funding participates is competitive and, if it does not compete effectively, its operating results could be harmed.

The consumer lending market is competitive and rapidly changing. With the introduction of new technologies and the influx of new entrants, Prosper Funding expects competition to persist and intensify in the future, which could harm Prosper Funding’s ability to increase volume on the platform.

Prosper Funding’s principal competitors include major banking institutions, credit unions, credit card issuers and other consumer finance companies, as well as other peer-to-peer lending platforms, including LendingClub. Competition could result in reduced volumes, reduced fees or the failure of the platform to achieve or maintain more widespread market acceptance, any of which could harm Prosper Funding’s business. In addition, in the future Prosper Funding may experience new competition from more established Internet companies, such as eBay Inc., Google Inc., or Yahoo! Inc., possessing large, existing customer bases, substantial financial resources and established distribution channels. If any of these companies or any major financial institution decided to enter the peer-to-peer lending business, acquire one of Prosper Funding’s existing competitors or form a strategic alliance with one of Prosper Funding’s competitors, Prosper Funding’s ability to compete effectively could be significantly compromised and its operating results could be harmed.

Most of Prosper Funding’s current or potential competitors have significantly more financial, technical, marketing and other resources than Prosper Funding does and may be able to devote greater resources to the development, promotion, sale and support of their platforms and distribution channels. Prosper Funding’s potential competitors may also have longer operating histories, more extensive customer bases, greater brand recognition and broader customer relationships than Prosper Funding has. These competitors may be better able to develop new products, to respond quickly to new technologies and to undertake more extensive marketing campaigns. Prosper Funding’s industry is driven by constant innovation. If Prosper Funding is unable to compete with such companies and meet the need for innovation, the use of the platform could stagnate or substantially decline.

If Prosper Funding fails to promote and maintain its brand in a cost-effective manner, it may lose market share and its revenue may decrease.

To succeed, Prosper Funding must increase transaction volumes on the platform by attracting a large number of borrowers and lender members in a cost-effective manner, many of whom have not previously participated in peer-to-peer lending. If Prosper Funding is not able to attract qualified borrowers and sufficient lender members purchase commitments, it will not be able to increase its transaction volumes. Prosper Funding believes that developing and maintaining awareness of its brand in a cost-effective manner is critical to achieving widespread acceptance of the platform and attracting new borrower and lender members. Furthermore, it believes that the importance of brand recognition will increase as competition in the peer-to-peer lending industry increases. Successful promotion of its brand will depend largely on the effectiveness of marketing efforts and the member experience on the platform. These brand promotion activities may not yield increased revenues. If Prosper Funding fails to successfully promote and maintain its brand, it may lose its existing members to competitors or be unable to attract new members, which would cause its revenue to decrease and may impair its ability to maintain the platform.

Prosper Funding and PMI are subject to extensive federal, state and local regulation that could adversely impact its ability to service the borrower loans.

Prosper Funding and PMI are subject to extensive federal, state and local regulation, non-compliance with which could have a negative impact on their ability to service the Notes, provide a trading market for the Notes, or maintain the platform.

Additionally, PMI holds lending licenses or similar authorizations in 16 states, all of which have the authority to supervise and examine PMI’s activities. Because Prosper Funding currently relies on PMI, pursuant to the Administration Agreement, to oversee the operation of the platform on its behalf, if PMI does not comply with applicable laws, PMI could lose one or more of these licenses or authorizations, which may have an adverse effect on Prosper Funding’s ability to continue to perform its servicing obligations or maintain the platform. See “Government Regulation—Regulation and Consumer Protection Laws” for more information.

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The Federal Fair Debt Collection Practices Act and similar state debt collection laws regulate debt collection practices by “debt collectors” and prohibit debt collectors from engaging in certain practices in collecting, and attempting to collect, outstanding consumer loans. While Prosper Funding obligates the collection agencies it uses to comply with applicable law in collecting borrower loans (and PMI has sought and will seek to comply with such law when it undertakes direct collection activity in relation to borrower loans and PMI Borrower Loans), it is possible that improper collection practices may occur that could adversely affect the collectability of particular borrower loans originated through the platform or could result in financial penalties or operating restrictions being imposed on Prosper Funding or PMI that adversely affect their ability to operate or perform their respective payment and other obligations.

Arrangements for back-up servicing are limited. If PMI fails to maintain operations, you may experience a delay and increased cost in respect of your expected principal and interest payments on your Notes, and Prosper Funding may be unable to collect and process repayments from borrowers.

If PMI were to become subject to a bankruptcy proceeding, PMI may have the right to assume or reject the Administration Agreement between us (or the loan servicing provisions thereof), notwithstanding that, by its terms, the Administration Agreement terminates automatically, in its entirety, upon the bankruptcy or insolvency of PMI, because a bankruptcy court may disallow termination of the Administration Agreement (or the loan servicing provisions thereof) if the only default by PMI thereunder was PMI’s insolvency or the commencement of its bankruptcy case. If PMI elected to continue to perform under the Administration Agreement (or the loan servicing provisions thereof) without expressly assuming it or elected to assume the Administration Agreement (or the loan servicing provisions thereof), PMI would continue to perform its servicing obligations with respect to the borrower loans and the Notes. If PMI were to continue as servicer during the pendency of its bankruptcy proceeding, depending on the facts and circumstances at the time, Prosper Funding would determine whether the creation of new borrower loans would continue to be facilitated and new Notes issued through the platform. If PMI elected to reject the Administration Agreement (or the loan servicing provisions thereof), or if PMI was in default in performing its obligations thereunder (other than a default based on PMI’s insolvency or the commencement of its bankruptcy case), and PMI was unable to cure such default, the loan servicing provisions of the Administration Agreement (and likely also the other provisions thereof) would be terminated. If the loan servicing provisions of the Administration Agreement are terminated for any reason, Prosper Funding would attempt to transfer the loan servicing obligations on the borrower loans and Notes to a third party pursuant to its contractual agreements with lender members.

Prosper Funding and PMI expect to enter into a back-up servicing agreement with a loan servicing company who is willing and able to transition servicing responsibilities from PMI. There can be no assurance, however, that this back-up servicer will be able to adequately perform the servicing of the outstanding borrower loans. If this back-up servicer assumes the servicing of the borrower loans, the back-up servicer may impose additional servicing fees, reducing the amounts available for payments on the Notes. Additionally, transferring these servicing obligations to the back-up servicer may result in delays in the processing of information with respect to amounts owed on the borrower loans or, if the platform becomes inoperable, may prevent the back-up servicer from servicing the borrower loans and making principal and interest payments on the Notes. If the back-up servicer is not able to service the borrower loans effectively, your ability to receive principal and interest payments on your Notes may be substantially impaired.

In addition, it is unlikely that the back-up servicer would be able to perform functions other than servicing the outstanding borrower loans and Notes. For instance, the back-up servicer likely would not be able to facilitate the creation of new loans through the platform or manage Prosper Funding’s marketing efforts. Prosper Funding believes that it could find one or more other parties who could perform these and any other functions necessary to fully operate the platform in the absence of PMI. However, it could take some time to find another such party or parties who could perform the necessary functions and it could take such party or parties additional time to become comfortable with the operation of the platform.

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Moreover, PMI owns and is not transferring to Prosper Funding ownership of the computer hardware that it currently uses to host and maintain the website or agreements with third parties relating to the hosting and maintenance of the website. Although PMI’s retention of such hardware and agreements should not bear on a bankruptcy court’s analysis of the legal separateness of PMI and Prosper Funding (or their respective assets and liabilities), the cessation of or substantial reduction of the day-to-day operations of PMI (because of or during its bankruptcy or otherwise) would materially impair and delay the ability of Prosper Funding or a back-up service provider to retrieve data and information in the possession of PMI and to operate the platform or elements thereof relevant to loan and Note servicing.

Any such delay or impairment that did not affect existing Note holders, because Prosper Funding or its back-up servicer proves able to continue servicing outstanding loans and Notes, could nonetheless delay Prosper Funding’s ability to facilitate the creation of new loans and issue new Notes through the platform, which could adversely affect Prosper Funding’s finances and customer relationships.

The proprietary technology that makes operation of the platform possible is not protected by any patents. It may be difficult and costly for Prosper Funding to protect its intellectual property rights in relation thereto, or to continue to develop or obtain new technologies, which could adversely affect its ability to operate competitively.

PMI developed the platform and owned the proprietary technology that makes operation of the platform possible. In connection with this offering, PMI will transfer ownership of the platform, including the proprietary technology and all of the rights related to the operation of the platform, to Prosper Funding. Prosper Funding’s ability to maintain the platform depends, in part, upon this proprietary technology. Prosper Funding may not protect the proprietary technology effectively, which would allow competitors to duplicate its products and adversely affect its ability to compete with them. A third party may attempt to reverse engineer or otherwise obtain and use the proprietary technology without Prosper Funding’s consent. In addition, the platform may infringe upon claims of third-party patents and Prosper Funding or PMI may face intellectual property challenges from such other parties. Prosper Funding or PMI may not be successful in defending against any such challenges or in obtaining licenses to avoid or resolve any intellectual property disputes. Furthermore, the technology may become obsolete, and there is no guarantee that Prosper Funding will be able to successfully develop, obtain or use new technologies to adapt the platform to compete with other peer-to-peer lending platforms. If Prosper Funding cannot protect the proprietary technology embodied in and used by the platform from intellectual property challenges, or if the platform becomes obsolete, its ability to maintain the platform and perform its servicing obligations could be adversely affected and, in such event, its ability to continue to make payments on the Notes could be materially impaired.

Prosper Funding relies on a third-party commercial bank to process transactions. If Prosper Funding is unable to continue utilizing these services, its business and ability to service the Notes may be adversely affected.

Because Prosper Funding is not a bank, it cannot belong to or directly access the Automated Clearing House (ACH) payment network. As a result, it currently relies on an FDIC-insured depository institution to process its transactions. If Prosper Funding cannot continue to obtain such services from this institution or elsewhere, or if it cannot transition to another processor quickly, its ability to process payments will suffer and your ability to receive principal and interest payments on the Notes will be delayed or impaired.

Although Prosper Funding has been organized in a manner that is intended to minimize the likelihood that it will become subject to a bankruptcy proceeding, if this were to occur, the rights of the holders of the Notes could be uncertain, and payments on the Notes may be limited, suspended or stopped. The recovery, if any, of a holder on a Note may therefore be substantially delayed and substantially less than the principal and interest due and to become due on the Note.

Although Prosper Funding has been organized and will be operated in a manner that is intended to minimize the likelihood that it will become subject to a bankruptcy or similar proceeding, if this were to occur, the recovery, if any, of a holder of a Note may be substantially delayed in time and may be substantially less in amount than the principal and interest due and to become due on the Note. For example, Prosper Funding has structured its limited liability company agreement, and agreed to covenants in the indenture, that limit its activities in a manner that is intended to limit the possibility that it could be required to file for bankruptcy. In addition, Prosper Funding must receive the affirmative vote of its independent board members to file for bankruptcy. There is no guarantee, however, that its fee income from license fees and loan servicing fees will be sufficient to fund its contingent and other liabilities described above or that it will not enter into transactions that cause it to face solvency issues that ultimately could cause it to file for bankruptcy. Further, although Prosper Funding has granted the indenture trustee, for the benefit of the Note holders, a security interest in all of the borrower loans, all payments and proceeds it receives on the corresponding borrower loans and in the bank account in which the borrower loan payments are deposited, the holders of the Notes would still be subject to the following risks associated with Prosper Funding’s insolvency, bankruptcy or a similar proceeding.

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If Prosper Funding becomes subject to a bankruptcy or similar proceeding, borrowers may delay payments or cease making payments at all.

Borrowers may delay or suspend making payments to Prosper Funding because of the uncertainties occasioned by its becoming subject to a bankruptcy or similar proceeding, even if the borrowers have no legal right to do so, and such delay would reduce, at least for a time, the funds that might otherwise be available to pay the Notes corresponding to those borrower loans. In addition, the commencement of the bankruptcy or similar proceeding may, as a matter of law, prevent Prosper Funding from making regular payments on the Notes, even if the funds to make such payments are available. Because the indenture trustee would be required to enforce its security interest in the borrower loans in a bankruptcy or similar proceeding, the indenture trustee’s ability to make payments under the Notes would be delayed, which may effectively reduce the value of any recovery that a holder of a Note may receive (and no such recovery can be assured) by the time any recovery is available.

If Prosper Funding becomes subject to a bankruptcy or similar proceeding, interest accruing upon and following such bankruptcy or similar proceeding may not be paid.

In a bankruptcy or similar proceeding for Prosper Funding, interest accruing on the Notes during the proceedings may not be part of the allowed claim of a holder of a Note. If the holder of a Note receives a recovery on the Note (and no such recovery can be assured), any such recovery may be based on, and limited to, the claim of the holder of the Note for principal and for interest accrued up to the date of the bankruptcy or similar proceeding, but not thereafter. Because a bankruptcy or similar proceeding may take months or years to complete, a claim based on principal and on interest only up to the start of the bankruptcy or similar proceeding may be substantially less than a claim based on principal and on interest through the end of the bankruptcy or similar proceeding.

If Prosper Funding becomes subject to a bankruptcy or similar proceeding a holder of a Note may not have any priority right to payment from the corresponding borrower loan, may not have any right to payment from funds in the master servicing account, and may not have any ability to access funds in the account maintained for the benefit of lender members.

If Prosper Funding failed to perfect the security interest properly, you may be required to share the proceeds of the borrower loan upon which your Note is dependent for payment with its other creditors. To the extent that proceeds of the corresponding borrower loan would be shared with Prosper Funding’s other creditors, any secured or priority rights of such other creditors may cause the proceeds to be distributed to such other creditors before any distribution is made to you on your Note.

If a payment is made on a borrower loan corresponding to a Note before Prosper Funding’s bankruptcy or similar proceeding is commenced, and those funds are held in the master servicing account Prosper Funding maintains with Wells Fargo Bank, N.A., to collect borrower payments and have not been used by Prosper Funding to make payments on the Note as of the date the bankruptcy or similar proceeding is commenced, there can be no assurance that Prosper Funding will or will be able to use such funds to make payments on the Note. Other creditors of Prosper Funding (including holders of other Notes) may be deemed to have rights to such funds that are equal to or greater than the rights of the holder of the Note. See “About the Platform—Loan Servicing and Collections” for more information.

Prosper Funding maintains a pooled account at Wells Fargo Bank, N.A. to hold the funds of lender members. This account is titled “Prosper Funding LLC for the benefit of its lender members” and is referred to as the “FBO account.” Although Prosper Funding believes that amounts funded by lender members into the FBO account should not be subject to claims of its creditors other than the lender members for whose benefit the funds are held, the legal title to the FBO account, and the attendant right to administer the FBO account would be property of Prosper Funding’s bankruptcy estate. As a result, if Prosper Funding were to file for bankruptcy protection, the legal right to administer the funds in the FBO account would vest with the bankruptcy trustee or debtor in possession. In that case, while neither Prosper Funding nor its creditors should be able to reach those funds, the indenture trustee or the lender members may have to seek a bankruptcy court order lifting the automatic stay and permitting them to withdraw their funds. Lender members may suffer delays in accessing their funds in the FBO account as a result. Moreover, United States Bankruptcy Courts have broad powers at law and in equity and, if Prosper Funding has failed to properly segregate or handle lender members’ funds, a bankruptcy court could determine that some or all of such funds were beneficially owned by Prosper Funding and therefore that they became available to Prosper Funding’s creditors generally. See “About the Platform—Loan Servicing and Collections” and “About the Platform—Structure of Lender Member Accounts and Treatment of Lender Member Balances” for more information.

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In a bankruptcy or similar proceeding for Prosper Funding, the holder of a Note may be delayed or prevented from enforcing Prosper Funding’s repurchase obligations.

In a bankruptcy or similar proceeding for Prosper Funding, any right of a holder of a Note to require Prosper Funding to repurchase the Note under the circumstances set forth in the lender registration agreement might not be enforceable, and such holder’s claim for such repurchase may be treated less favorably than a general unsecured obligation of Prosper Funding. For a discussion of the restrictions Prosper Funding has imposed upon itself and the formalities it has adopted under its organizational documents to minimize the likelihood of its becoming subject to a bankruptcy or similar proceeding, see “Information about Prosper Funding LLC.”

Although Prosper Funding has been organized in a manner that is intended to prevent it from being substantively consolidated with PMI in the event of PMI’s bankruptcy, if Prosper Funding were substantively consolidated in this manner, the rights of the holders of the Notes could be uncertain, and payments on the Notes may be limited, suspended or stopped. The recovery, if any, of a holder on a Note may therefore be substantially delayed and substantially less than the principal and interest due and to become due on the Note.

Although Prosper Funding has been organized and will be operated in a manner that is intended to prevent it from being substantively consolidated with PMI in the event of PMI’s bankruptcy, if PMI became subject to a bankruptcy or similar proceeding and Prosper Funding were substantively consolidated with PMI, the risks described in the immediately preceding risk factors regarding (i) payment delays, (ii) uncollectability of interest accrued during the bankruptcy proceeding, (iii) being subordinated to the interests of Prosper Funding’s other creditors, and (iv) the indenture trustee’s inability to access funds in the master servicing account or the FBO account would all be present and, in addition, the same considerations would apply in relation to the claims of creditors of PMI, including that such creditors of PMI may be determined to have perfected security interests or unsecured claims that take precedence over or are at least equal in priority to those of creditors of Prosper Funding (including holders of Notes).

In addition, in a bankruptcy or similar proceeding of PMI, (1) the implementation of back-up servicing arrangements may be delayed or prevented, and (2) PMI’s ability to transfer its servicing obligations to a back-up servicer or its other corporate and platform administration services and marketing services to third parties may be limited and subject to the approval of the bankruptcy court or other presiding authority. The bankruptcy process may delay or prevent the implementation of back-up servicing, which may impair the collection of borrower loans to the detriment of holders of the Notes.

For a discussion of the restrictions Prosper Funding has imposed upon itself and the formalities it has adopted under its organizational documents and agreed to in the indenture to prevent its being substantively consolidated with PMI in the event of PMI’s bankruptcy, see “Information about Prosper Funding LLC.”

PMI owns and is not transferring to Prosper Funding ownership of the computer hardware that it currently uses to host and maintain the website or agreements with third parties relating to the hosting and maintenance of the website. Although PMI’s retention of such hardware and agreements should not bear on a bankruptcy court’s analysis of the legal separateness of PMI and Prosper Funding (or their respective assets and liabilities), the cessation of or substantial reduction of the day-to-day operations of PMI (because of or during its bankruptcy or otherwise) would materially impair and delay the ability of Prosper Funding or a back-up service provider to retrieve data and information in the possession of PMI and to operate the platform or elements thereof relevant to loan and Note servicing.

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If the security of Prosper Funding’s lender members’ and borrower members’ confidential information stored in Prosper Funding or PMI’s systems is breached or otherwise subjected to unauthorized access, your secure information may be stolen, Prosper Funding and PMI’s reputations may be harmed, and they may be exposed to liability.

As with any entity with a significant Internet presence, Prosper Funding, PMI and the third party that Prosper Funding uses for website hosting occasionally have experienced cyber-attacks, attempts to breach their systems and other similar incidents, none of which have been successful. The platform stores Prosper Funding’s lender members’ and borrower members’ bank information and other personally-identifiable sensitive data. Any accidental or willful security breaches or other unauthorized access could cause your secure information to be stolen and used for criminal purposes. Security breaches or unauthorized access to secure information could also expose Prosper Funding or PMI to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in the relevant software are exposed and exploited, and, as a result, a third party or disaffected employee obtains unauthorized access to any lender members’ or borrower members’ data, Prosper Funding’s relationships with its members will be severely damaged, and it (or PMI) could incur significant liability. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, Prosper Funding, PMI and Prosper Funding’s third-party hosting facilities may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, many states have enacted laws requiring companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach are costly to implement and often lead to widespread negative publicity, which may cause Prosper Funding’s members to lose confidence in the effectiveness of its and PMI’s data security measures. Any security breach, whether actual or perceived, would harm Prosper Funding and PMI’s reputations, and Prosper Funding could lose members.

Any significant disruption in service on the platform or in PMI’s computer systems could adversely affect PMI’s ability to perform its obligations under the Administration Agreement.

PMI’s ability to perform its obligations under the Administration Agreement could be materially and adversely affected by events outside of its control. The satisfactory performance, reliability and availability of PMI’s technology and its underlying network infrastructure are important to Prosper Funding and PMI’s respective operations, level of customer service, reputation and ability to attract new members and retain existing members. PMI’s system hardware is hosted in a hosting facility located in San Francisco, California, owned and operated by Digital Realty Trust. PMI also maintains an off-site backup system located in Las Vegas, Nevada. Digital Realty Trust does not guarantee that access to the platform or to PMI’s own systems will be uninterrupted, error-free or secure. The operation of the platform and PMI’s operation of its own systems depend on Digital Realty Trust’s ability to protect the relevant systems in Digital Realty Trust’s facilities against damage or interruption from natural disasters, power or telecommunications failures, air quality, temperature, humidity or other environmental concerns, computer viruses or other attempts to harm them, criminal acts and similar events. If PMI’s arrangement with Digital Realty Trust is terminated, or there is a lapse of service or damage to Digital Realty Trust’s facilities, PMI could experience interruptions in providing its services under the Administration Agreement, Prosper Funding could experience interruptions in the operations of the platform, and both could experience delays and additional expense in arranging new facilities. Any interruptions or delays in PMI’s performance of its services or in the functioning of and accessibility of the platform, whether as a result of Digital Realty Trust or other third-party error, PMI’s error, natural disasters or security breaches, whether accidental or willful, could harm Prosper Funding’s relationships with its members and its reputation. Additionally, in the event of damage or interruption, PMI’s insurance policies may not be sufficient for PMI to adequately compensate Prosper Funding for any losses that it may incur. PMI’s disaster recovery plan has not been tested under actual disaster conditions, and PMI may not have sufficient capacity to recover all data and services in the event of an outage at the Digital Realty Trust facility. These factors could prevent PMI from processing or posting payments on the borrower loans or the Notes, damage Prosper Funding’s brand and reputation, divert the attention of PMI’s employees, reduce Prosper Funding’s revenue, subject PMI or Prosper Funding to liability and cause members to abandon the platform, any of which could adversely affect PMI and Prosper Funding’s respective businesses, financial condition and results of operations.

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The platform may be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions.

The platform may be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions. If a “hacker” were able to infiltrate the platform, you would be subject to the increased risk of fraud or borrower identity theft and may experience losses on, or delays in the recoupment of amounts owed on, a fraudulently induced purchase of a Note. Additionally, if a hacker were able to access Prosper Funding or PMI’s secure files, he or she might be able to gain access to your personal information. While Prosper Funding and PMI have taken steps to prevent such activity from affecting the platform, if they are unable to prevent such activity, the value of your investment in the Notes could be adversely affected.

Competition for PMI’s employees is intense, and PMI may not be able to attract and retain the highly skilled employees it needs to perform under the Administration Agreement.

Competition for highly skilled technical and financial personnel is extremely intense. PMI may not be able to hire and retain these personnel at compensation levels consistent with its existing compensation and salary structure. Many of the companies with which PMI competes for experienced employees have greater resources than PMI has and may be able to offer more attractive terms of employment.

In addition, PMI invests significant time and expense in training its employees, which increases their value to competitors who may seek to recruit them. If PMI fails to retain its employees, it could incur significant expenses in hiring and training their replacements and the quality of its services and its ability to serve borrowers and lender members could diminish, resulting in a material adverse effect on its ability to perform its obligations under the Administration Agreement and, in such event, Prosper Funding’s ability to continue to make payments on the Notes could be materially impaired.

PMI’s growth could strain its personnel resources and infrastructure, and if PMI is unable to implement appropriate controls and procedures to manage its growth, this may adversely affect its ability to perform under the Administration Agreement.

PMI’s growth in headcount and operations since its inception has placed, and will continue to place, to the extent that PMI is able to sustain such growth, a significant strain on its management and its administrative, operational and financial reporting infrastructure.

PMI’s success will depend in part on the ability of its senior management effectively to manage the growth it achieves. To do so, PMI must continue to hire, train and manage new employees as needed. If PMI’s new hires perform poorly, or if PMI is unsuccessful in hiring, training, managing and integrating new employees, or if PMI is not successful in retaining its existing employees, its ability to perform under the Administration Agreement may be impaired. To manage the expected growth of PMI’s operations and personnel, PMI will need to continue to improve its operational and financial controls and update its reporting procedures and systems. The addition of new employees and the system development that PMI anticipates will be necessary to manage its growth will increase PMI’s cost base, which will make it more difficult for PMI to offset any future revenue shortfalls by reducing expenses in the short term. If PMI fails to successfully manage its growth, it will be unable to execute its business plan and its ability to perform under the Administration Agreement may be impaired.

Purchasers of Notes will have no control over Prosper Funding or PMI and will not be able to influence their corporate matters.

Prosper Funding is not offering and will not offer equity interests in its company. Lender members who purchase Notes offered through the platform will have no equity interest in Prosper Funding or in PMI and no ability to vote on or influence their decisions. As a result, PMI, which owns all of Prosper Funding’s outstanding equity interests, will continue to have sole control over Prosper Funding’s governance matters, subject to the presence of Prosper Funding’s independent directors, whose consent will be required before Prosper Funding can take certain extraordinary actions, and subject to the limitations specified in Prosper Funding’s organizational documents and the indenture. See “Information About Prosper Funding LLC.”

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Individuals who make misrepresentations or omissions in violation of the securities laws of the State of Washington when posting comments on the platform may be subject to sellers’ liability under the Securities Act of Washington.

Prosper Funding permits its members and loan applicants to post certain comments on the platform. Individuals who make misrepresentations or omissions in violation of section 21.20.010 of the Securities Act of Washington when posting such comments may be subject to sellers’ liability under the Securities Act of Washington. Neither Prosper Funding nor PMI monitors the comments posted on the platform for statements that might violate the securities laws of the State of Washington.

Events beyond Prosper Funding and PMI’s control may damage their ability to maintain adequate records, maintain the platform or perform the servicing obligations. If such events result in a system failure, your ability to receive principal and interest payments on the Notes would be substantially harmed.

If a catastrophic event resulted in a platform outage and physical data loss, Prosper Funding’s ability (and PMI’s ability as servicer under the Administration Agreement) to perform its servicing obligations would be materially and adversely affected. Such events include, but are not limited to, fires, earthquakes, terrorist attacks, natural disasters, computer viruses and telecommunications failures. In addition, PMI is responsible for storing back-up records related to the operation of the platform in offsite facilities located in San Francisco, California and Las Vegas, Nevada. If PMI’s electronic data storage and back-up data storage system are affected by such events, Prosper Funding’s ability (and PMI’s ability as servicer under the Administration Agreement) to perform its servicing obligations could be materially and adversely affected. In the event of any platform outage or physical data loss described in this paragraph, Prosper Funding cannot guarantee that you would be able to recoup your investment in the Notes.

Prosper Funding is an “emerging growth company” under the JOBS Act of 2012, and it cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make the Notes less attractive to investors.

Prosper Funding is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and, as such, it is eligible for certain exemptions from reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Prosper Funding will remain an emerging growth company until the earliest of: (i) the first fiscal year after it has revenue in excess of $1 billion; (ii) the beginning of the sixth fiscal year after its first registered sale of common equity securities in an initial public offering; (iii) the date upon which it has issued in excess of $1 billion of non-convertible debt during the previous three-year period; or (iv) the date on which it would be deemed a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Prosper Funding cannot predict if investors will find the Notes less attractive because it may rely on these exemptions.

Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, Prosper Funding has elected to “opt out” of this extended transition period, and as a result, it will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-”emerging growth companies.” Its decision to opt out of the extended transition period is irrevocable.

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Risks Relating to Compliance and Regulation

The platform represents a novel approach to borrowing and lending that may fail to comply with federal and state securities laws, borrower protection laws, such as state lending laws, federal consumer protection laws, such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act and the Fair Debt Collection Practices Act, and the state counterparts to such consumer protection laws. Borrowers may dispute the enforceability of their obligations under borrower or consumer protection laws after collection actions have commenced, or otherwise seek damages under these laws. Lenders may attempt to rescind their Note purchases under securities laws. Compliance with such regulatory regimes is also costly and burdensome.

The platform represents a novel program that must comply with regulatory regimes applicable to consumer credit transactions as well as with regulatory regimes applicable to securities transactions. The novelty of the platform means compliance with various aspects of such laws is untested. Certain state laws generally regulate interest rates and other charges and require certain disclosures, and also require licensing for certain activities. In addition, other state laws, public policy and general principles of equity relating to the protection of consumers, unfair and deceptive practices and debt collection practices may apply to the origination, servicing and collection of borrower loans on the platform. The platform is also subject to other laws, such as:

·	the Federal Truth-in-Lending Act and Regulation Z promulgated thereunder, which require certain disclosures to borrowers regarding the terms of their loans;

the Federal Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination in the extension of credit on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act;

·	the Federal Fair Credit Reporting Act, which regulates the use and reporting of information related to each applicant’s credit history;

·	the Federal Fair Debt Collection Practices Act, which regulates debt collection practices by “debt collectors” and prohibits debt collectors from engaging in certain practices in collecting, and attempting to collect, outstanding consumer loans;

·	state counterparts to the above consumer protection laws; and

·	state and federal securities laws, which require that any non-exempt offers and sales of the Securities be registered.

Prosper Funding and PMI may not always be in compliance with these laws. Borrowers may make counterclaims regarding the enforceability of their obligations under borrower or consumer protection laws after collection actions have commenced, or otherwise seek damages under these laws. Lenders may attempt to rescind their Note purchases under securities laws, and Prosper Funding or PMI’s failure to comply with such laws could also result in civil or criminal liability. For example, in 2010 and 2011 PMI failed to timely renew its applications to offer and sell its borrower payment dependent notes in several states, resulting in $75,800 in penalties in five states, and the repurchase of $21,900 of Notes from Florida residents pursuant to a rescission offer. Compliance with these requirements is also costly, time-consuming and limits operational flexibility. See “Government Regulation—Regulation and Consumer Protection Laws” for more information.

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Noncompliance with laws and regulations may impair PMI’s ability to facilitate the origination of or service borrower loans.

Generally, failure to comply with applicable laws and regulatory requirements may, among other things, limit Prosper Funding’s, PMI’s or a collection agency’s ability to collect all or part of the principal amount of or interest on the borrower loans on which the Notes are dependent for payment. In addition, non-compliance could subject Prosper Funding or PMI to damages, revocation of required licenses, class action lawsuits, administrative enforcement actions, and civil and criminal liability, which may harm Prosper Funding’s business and ability to maintain the platform and may result in borrowers rescinding their borrower loans.

Where applicable, Prosper Funding and PMI seek to comply with state lending, servicing and similar statutes. In all U.S. jurisdictions with licensing or other requirements that Prosper Funding and PMI believe may be applicable to the platform, Prosper Funding and PMI have obtained any necessary licenses or comply with the relevant requirements. Nevertheless, if Prosper Funding or PMI are found to not comply with applicable laws, Prosper Funding or PMI could lose one or more of their licenses or face other sanctions, which may have an adverse effect on PMI’s ability to continue to facilitate the origination of borrower loans through the platform, and on Prosper Funding or PMI’s ability to perform servicing obligations or make the platform available to borrowers in particular states, which may impair your ability to receive the payments of principal and interest on your Notes that you expect to receive. See “Government Regulation—Regulation and Consumer Protection Laws—State and Federal Laws and Regulations” for more information.

Prosper Funding relies on its agreement with WebBank, pursuant to which WebBank originates loans to qualified borrower members on a uniform basis throughout the United States and sells and assigns those loans to Prosper Funding. If Prosper Funding’s relationship with WebBank were to end, it may need to rely on individual state lending licenses to originate borrower loans.

Borrower loan requests take the form of an application to WebBank submitted through the platform. WebBank currently makes all loans to borrowers through the platform, which allows the platform to be available to borrowers on a uniform basis throughout the United States. If Prosper Funding’s relationship with WebBank were to end or if WebBank were to cease operations, Prosper Funding may need to rely on individual state lending licenses to originate borrower loans. Because Prosper Funding does not currently possess state lending licenses in every U.S. state, it might be forced to limit the rates of interest charged on borrower loans in some states and it might not be able to originate loans in some states altogether. It also may face increased costs and compliance burdens if its agreement with WebBank is terminated.

Several lawsuits have sought to recharacterize certain loan marketers and other originators as lenders. If litigation or a regulatory enforcement action on similar theories were successful against Prosper Funding or PMI, borrower loans originated through the platform could be subject to state consumer protection laws and licensing requirements in a greater number of states.

Several lawsuits have brought under scrutiny the association between high-interest “payday loan” marketers and out-of-state banks. These lawsuits assert that payday loan marketers use out-of-state lenders in order to evade the consumer protection laws imposed by the states where they do business. Such litigation has sought to recharacterize the loan marketer as the lender for purposes of state consumer protection law restrictions. Similar civil actions have been brought in the context of gift cards. Prosper Funding and PMI believe that their activities are distinguishable from the activities involved in these cases.

Nevertheless, if Prosper Funding or PMI were recharacterized as the lender of borrower loans, such a recharacterization could render those loans voidable or unenforceable in whole or in part. In addition, Prosper Funding and PMI could be subject to claims by borrowers, as well as enforcement actions by regulators. Even if Prosper Funding and PMI were not required to cease doing business with residents of certain states or to change their business practices to comply with applicable laws and regulations, they could be required to register or obtain licenses or regulatory approvals that could impose a substantial cost on them. To date, no actions have been taken or threatened against Prosper Funding or PMI on the theory that either has engaged in unauthorized lending. However, such actions could have a material adverse effect on Prosper Funding or PMI’s businesses.

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As Internet commerce develops, federal and state governments may draft and propose new laws to regulate Internet commerce, which may negatively affect Prosper Funding and PMI’s businesses.

As Internet commerce continues to evolve, increasing regulation by federal and state governments becomes more likely. Prosper Funding and PMI’s businesses could be negatively affected by the application of existing laws and regulations or the enactment of new laws applicable to peer-to-peer lending. The cost to comply with such laws or regulations could be significant and would increase Prosper Funding and PMI’s operating expenseses, and Prosper Funding and PMI may be unable to pass along those costs to Prosper Funding’s members in the form of increased fees. In addition, federal and state governmental or regulatory agencies may decide to impose taxes on services provided over the Internet. These taxes could discourage the use of the Internet as a means of consumer lending, which would adversely affect the viability of the platform.

If the SEC deems Prosper Funding to be an asset-backed issuer under Regulation AB, it could be required to provide the disclosures and file the reports required of asset-backed issuers, which could adversely impact its business model and impose additional costs.

Regulation AB under the Securities Act of 1933, as amended, defines an asset-backed security as “a security that is primarily serviced by the cash flows of a discrete pool of receivables or other financial assets, either fixed or revolving, that by their terms convert into cash within a finite time period, plus any rights or other assets designed to assure the servicing or timely distributions of proceeds to the security holders.” Prosper Funding does not believe that a Note is an asset-backed security under this definition, in part because the Notes are not backed by a “discrete pool” of assets since Prosper Funding will make payments on a Note from the cash flow generated by the single loan underlying the Note. Prosper Funding has not, however, sought a no-action letter or other informal confirmation from the staff of the SEC, and it is possible that the SEC or a court could disagree with its conclusion. In such circumstances, Prosper Funding would be required to seek an exemptive order or no-action relief, both of which impose significant costs and delays on its business, and if those are unsuccessful, prepare a registration statement and periodic reports that are substantially different from this registration statement and the periodic reports filed by PMI in connection with its outstanding Notes. For example, an asset-backed issuer must file a distribution report on Form 10-D within 15 days after each required distribution date for the asset-backed security as specified in the transaction documents. Prosper Funding makes hundreds of distributions a week, and as a result, it could be required to file numerous Forms 10-D in the absence of no-action relief from the SEC. These requirements could adversely affect it business model and impose additional costs that it did not anticipate in structuring this offering, which could ultimately undermine the purpose for which it was organized.

Prosper Funding is treating the Notes as “asset-backed securities” for purposes of the Exchange Act, which defines that term differently than does Regulation AB. It has reserved the right to request confirmation from the SEC at a later date that the Notes need not be so treated. Regulations under the Exchange Act requiring asset securitizers to retain a portion of the credit risk associated with the securitized assets are expected to become effective in the future. If the Notes continue to be treated as “asset-backed securities” under the Exchange Act when these regulations become effective, Prosper Funding’s business operations, could be adversely affected.

If Prosper Funding or PMI is required to register under the Investment Company Act, their ability to conduct business could be materially adversely affected.

The Investment Company Act of 1940, or the “Investment Company Act,” contains substantive legal requirements that regulate the manner in which “investment companies” are permitted to conduct their business activities. Prosper Funding and PMI believe PMI has conducted its business, and Prosper Funding intends to conduct its business, in a manner that does not result in being characterized as an investment company. If, however, Prosper Funding is deemed to be an investment company under the Investment Company Act, it may be required to institute burdensome compliance requirements and its activities may be restricted, which would materially adversely affect its business, financial condition and results of operations. Any determination that PMI is an investment company under the Investment Company Act similarly could impair its ability to perform its obligations under the Administration Agreement and thereby impair Prosper Funding’s ability to make payments on the Notes. If Prosper Funding or PMI were deemed to be an investment company, Prosper Funding or PMI may also attempt to seek exemptive relief from the SEC, which could impose significant costs and delays on their businesses.

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If Prosper Funding or PMI is required to register under the Investment Advisers Act, their ability to conduct business could be materially adversely affected.

The Investment Advisers Act of 1940, or the “Investment Advisers Act,” contains substantive legal requirements that regulate the manner in which “investment advisers” are permitted to conduct their business activities. Prosper Funding believes that its business consists of providing a platform for peer-to-peer lending for which investment adviser registration and regulation do not apply under applicable federal or state law, and does not believe that it is required to register as an investment adviser with either the SEC or any of the various states. The SEC or a state securities regulator could reach a different conclusion, however. Registration as an investment adviser could adversely affect Prosper Funding’s method of operation and revenues. For example, the Investment Advisers Act requires that an investment adviser act in a fiduciary capacity for its clients. Among other things, this fiduciary obligation requires that an investment adviser manage a client’s portfolio in the best interests of the client, have a reasonable basis for its recommendations, fully disclose to its client any material conflicts of interest that may affect its conduct and seek best execution for transactions undertaken on behalf of its client. It could be difficult for Prosper Funding to comply with this obligation without meaningful changes to its business operations, and there is no guarantee that it could do so successfully. If Prosper Funding were ever deemed to be in non-compliance with applicable investment adviser regulations, it could be subject to various penalties, including administrative or judicial proceedings that might result in censure, fine, civil penalties (including treble damages in the case of insider trading violations), the issuance of cease-and-desist orders or other adverse consequences. Similarly, any determination by regulators that PMI must register as an investment adviser could materially adversely affect PMI and impair its ability to continue to administer the platform on Prosper Funding’s behalf.

PMI’s previous administration of an automated bidding plan system and the administration of Quick Invest by PMI under its previous offering and by Prosper Funding under this offering, could create additional liability for PMI or Prosper Funding and such liability could be material.

PMI’s former automated plan system allowed lender members to create their own automated bidding plans. By creating such a plan, a lender member could have bids placed automatically on her behalf on loan listings that met loan criteria selected by her. In creating an automated bidding plan, the member could design those criteria herself, use a group of model criteria selected by PMI, or customize one of those groups of model criteria as she saw fit. Each automated bidding plan consisted of a group of loan criteria, such as loan amount, minimum yield percentage, Prosper Rating, income and employment characteristics, group affiliations and debt-to-income ratio. That group of criteria was divided into sub-groups, each of which were referred to as a “slice.” The specific loans on which the lender member bid through her automated bidding plan were determined by the criteria in each of her plan slices. If a loan listing was posted that satisfied all of the criteria in any one of her plan slices, a bid would automatically be placed on the listing on her behalf.

On July 6, 2011, PMI replaced the former automated plan system with a new loan search tool, Quick Invest. Under Quick Invest, lender members are no longer able to create automated plans and instead identify Notes that meet their investment criteria. A lender using Quick Invest is asked to indicate (i) the Prosper Rating or Ratings she wishes to use as search criteria, (ii) the total amount she wishes to invest and (iii) the amount she wishes to invest per Note. Quick Invest then compiles a basket of Notes for her consideration that meet her search criteria. If the pool of Notes that meet her criteria exceeds the total amount she wishes to invest, Quick Invest selects Notes from the pool based on how far the listings corresponding to the Notes have progressed through the loan verification process, i.e., Notes from the pool that correspond to listings for which the loan verification process has been completed will be selected first. If the pool of Notes that meet the lender member’s criteria and for which the loan verification process has been completed still exceeds the amount she wishes to invest, Quick Invest selects Notes from that pool based on the principle of first in, first out, i.e., the Notes from the pool with the corresponding listings that were posted on the website earliest will be selected first. If the member’s search criteria include multiple Prosper Ratings, Quick Invest divides her basket into equal portions, one portion representing each Prosper Rating selected. To the extent available Notes with these Prosper Ratings are insufficient to fill the lender’s order, the lender is advised of this shortfall and given an opportunity either to reduce the size of her order or to modify her search criteria to make her search more expansive. The Auto Quick Invest feature allows lender members (i) to have Quick Invest searches run on their designated criteria automatically each time new listings are posted on the platform, and (ii) to place bids on any Notes identified by each such search. See “About the Platform—How to Bid to Purchase Notes—Quick Invest.”

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Since the Notes purchased through an automated plan or Quick Invest are the same as Notes purchased manually, they present the same risks of non-payment as all Notes that may be purchased through the platform. For example, there is a risk that a loan identified through an automated plan or Quick Invest may become delinquent or default, and the estimated return and estimated loss for that loan individually, or the estimated loss or return for the plan or the basket of Notes selected by Quick Invest as a whole, may not accurately reflect the actual return or loss on such loan. If this were to occur, a lender who purchased a note from PMI through an automated plan or Quick Invest could pursue a claim against PMI in connection with its representations regarding the performance of the loans bid upon through the plan or Quick Invest, and a lender who purchases a Note from Prosper Funding through an automated plan or Quick Invest could pursue a claim against Prosper Funding in connection with its representations regarding the performance of the loans bid upon through the plan or Quick Invest. An investor could pursue such a claim under various antifraud theories under federal and state securities law. In addition, the SEC or an investor may take the position that the plans created pursuant to the automated bidding plan model involved the offer and sale of a separate security. Since PMI did not register the automated bidding plans as separate securities, such a claim, if successful, could give investors who invested in notes through such plans a rescission right under state or federal law and possibly subject PMI to civil fines or criminal penalties under federal or state law. If such a theory were sustained, PMI could be liable for sales through automated bidding plans that took place prior to July 6, 2011. To date, no actions have been taken or threatened against PMI on this theory. However, such actions could have a material adverse effect on PMI’s business.

Prosper Funding and PMI may face liability under state and federal securities law for statements in this prospectus and in other communications that could be deemed to be an offer to the extent that such statements are deemed to be false or misleading.

Loan listings and other borrower information available on Prosper Funding’s website as well as in sales and listing reports are statements made in connection with the purchase and sale of securities that are subject to the antifraud provisions of the Exchange Act and the Securities Act. In general, these liability provisions provide a purchaser of the Securities with a right to bring a claim against Prosper Funding or PMI for damages arising from any untrue statement of material fact or failure to state a material fact necessary to make any statements made not misleading. Even though Prosper Funding and PMI have advised you of what they believe to be the material risks associated with an investment in the Securities, the SEC or a court could determine that they have not advised you of all of the material facts regarding an investment in the Securities, which could give you the right to rescind your investment and obtain damages, and could subject Prosper Funding and PMI to civil fines or criminal penalties in addition to any such rescission rights or damages.

The activities of Prosper Funding and PMI in connection with the offer and sale of securities on the platform could result in potential violations of federal securities law and result in material liability to Prosper Funding and PMI.

Prosper Funding and PMI’s respective businesses are subject to federal and state securities laws that may limit the kinds of activities in which Prosper Funding and PMI may engage and the manner in which they engage in such activities. For example, changes to the manner in which Prosper Funding offers and sells Notes or other securities on the platform could be viewed by the SEC or a state securities regulator as involving the creation or sale of new, unregistered securities. In such circumstances, the failure to register such securities could subject Prosper Funding and PMI to liability and the amount of such liability could be meaningful. In addition, PMI previously entered into a settlement with the SEC and consented to the entry of a Cease and Desist order that requires PMI to cease and desist from committing or causing any violations or any future violations of the securities laws. Failure to comply with that order could result in material civil or criminal liability, which could materially adversely affect PMI’s business and this offering.

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USE OF PROCEEDS

WeProsper Funding will use the proceeds of each series of Notes to facilitate the funding of athe related borrower loan through ~~our~~the platform designated by the lender members purchasing such series of Notes. WeProsper Funding will use the proceeds of each series of Notes to purchase the corresponding borrower ~~loan. Proceeds of the sale of Notes are paid to WebBank for the purchase of these borrower loans by Prosper~~loan from WebBank. See “About ~~Prosper”~~the Platform” for more information.

PMI will not receive any consideration for issuance of the PMI Management Contracts that accompany each Note.

~~PLAN~~PLAN OF DISTRIBUTION

WeProsper Funding will offer the Notes to ~~our~~ lender members at 100% of their principal amount. The Notes will be offered only by Prosper Funding through ~~the Prosper website, and there will be no underwriters or underwriting discounts.~~www.prosper.com. See “About ~~Prosper”~~the Platform” and “About Prosper Funding LLC” for more information. The PMI Management Contracts offered by PMI will accompany each Note offered on the platform.

~~FINANCIAL~~FINANCIAL SUITABILITY REQUIREMENTS

The ~~Notes~~Securities are highly risky and speculative. Investing in the ~~Notes~~Securities should be considered only by persons who can afford the loss of their entire investment. ~~Our~~The platform currently allows lender members to bid as little as $25 and as much as the full amount of any particular listing, up to an aggregate amount of $5,000,000 for individuals and $50,000,000 for institutions.

To purchase ~~Notes,~~Securities, lender members located in Alaska, Idaho, ~~Maine,~~Missouri, New Hampshire, ~~Oregon,~~ Virginia ~~and~~or Washington must meet one or more of the following suitability requirements:

(i) You must have an annual gross income of at least $70,000; (ii) your net worth must be at least ~~$70,000;~~$70,000 (exclusive of home, home furnishings and automobiles); and (iii) the total amount of ~~Notes~~Securities you purchase cannot exceed 10% of your net ~~worth;~~worth (exclusive of home, home furnishings and automobiles); or

(i) Your net worth must be at least ~~$250,000;~~$250,000 (exclusive of home, home furnishings and automobiles); and (ii) the total amount of ~~Notes you purchase cannot exceed 10% or your net worth.~~

~~Lender members that are residents of California must meet one or more of the following suitability requirements:~~

(i) You must have had an annual gross income of at least $85,000 during the last tax year; (ii) you must have a good faith belief that your annual gross income for the current tax year will be at least $85,000; and (iii) the total amount of NotesSecurities you purchase cannot exceed 10% of your net ~~worth; or~~worth (exclusive of home, home furnishings and automobiles).

~~(i) Your net worth must be at least $200,000; and (ii) the total amount of Notes you purchase cannot exceed 10% or your net worth; or~~

~~(i) Your net investment in Notes cannot exceed $2,500; and (ii) the total amount of Notes you purchase cannot exceed 10% or your net worth.~~

The Maine Office of Securities recommends that an investor’s aggregate investment in this offering and similar offerings not exceed 10% of the investor’s liquid net worth. For this purpose, “liquid net worth” is defined as that portion of net worth that consists of cash, cash equivalents and readily marketable securities.

For purposes of the suitability requirements described above, you and your spouse are considered to be a single person. In addition, the following definitions apply:

"annual gross income" means the total amount of money you earn each year, before deducting any amounts for taxes, insurance, retirement contributions or any other payments or expenses;

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"net investment" means the principal amount of ~~Notes~~Securities purchased, minus principal payments received on the ~~Notes.~~Securities.

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~~We are seeking~~Prosper Funding and PMI intend to register the offer and sale of ~~our Notes~~the Securities in all 50 states as well as the District of ~~Columbia and in all states except Alabama, Kansas, Kentucky, Maryland, New Jersey, North Carolina, Texas and Vermont.~~Columbia. As part of this process, weProsper Funding and PMI expect that states in addition to those referenced above will impose minimum financial suitability standards and maximum investment limits for lender members who reside in ~~their~~such states. Should this occur, weProsper Funding and PMI will set forth these requirements in a supplement to this prospectus. Under the lender registration agreement, lender members are required to represent and warrant that they satisfy the applicable minimum financial suitability standards and maximum investment limits of the state in which they reside. Lender members who fail to satisfy any such requirements will not be permitted to purchase ~~Notes.~~the Securities.

ABOUT THE PLATFORM

Overview

Prosper Funding operates a peer-to-peer online credit platform, which this prospectus refers to as the “platform,” that enables its borrower members to borrow money and its lender members to purchase Borrower Payment Dependent Notes, or Notes, issued by Prosper Funding, the proceeds of which facilitate the funding of the loans made to borrower members. Prosper Funding is a wholly-owned subsidiary of PMI.

PMI developed the platform and owned the proprietary technology that makes operation of the platform possible. In connection with this offering, PMI will transfer ownership of the platform, including all of the rights related to the operation of the platform, to Prosper Funding. PMI and WebBank expect to enter into a Loan Account Program Agreement, pursuant to which PMI, as agent of WebBank, manages the operation of the platform in connection with the submission of loan applications by potential borrowers, the making of related loans by WebBank and the funding of such loans by WebBank. Prosper Funding and PMI expect to enter into an Administration Agreement, pursuant to which PMI has agreed to manage all other aspects of the platform on behalf of Prosper Funding. Prior to the commencement of this offering, PMI operated the platform, facilitated the origination of loans by WebBank through the platform and issued and sold notes corresponding to those loans. This prospectus refers to borrower loans originated and notes issued and sold through the platform prior to the commencement of this offering as “PMI Borrower Loans” and “PMI Notes,” respectively. The PMI Notes are not offered pursuant to this prospectus.

The platform was designed to allow people to lend money to other people in an open transparent marketplace. Prosper Funding and PMI believe peer-to-peer lending represents a new model of consumer lending, where individuals can earn the interest spread of a traditional consumer lender but must also assume the credit risk of a traditional lender. It is people that are the drivers of credit formation in peer-to-peer lending, not institutions.

Prosper Funding and PMI believe peer-to-peer lending presents an enormous opportunity to create a more transparent form of consumer lending. Key drivers of peer-to-peer lending include:

· The possibility of lower rates and better terms for borrowers compared to traditional sources of consumer credit, such as credit cards;

· A new asset class for investors with the possibility of attractive risk-adjusted returns that are not directly correlated to the performance of the stock market;

· An opportunity to combine social networking with financial services in a manner that allows users that help fund loans to feel they are directly helping other people while also potentially earning attractive returns; and

· Growing acceptance of the Internet as an efficient and convenient forum for consumer transactions.

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How the Platform Works

The platform is an online marketplace that matches individuals who wish to obtain consumer loans (“borrower members”) with those who are willing to help fund those loans (“lender members”). A borrower member who wishes to obtain a loan through the platform must post a loan listing, or listing, on the platform. Lender members can review all the loan listings on the platform and make a commitment towards any listing they wish to help fund. A commitment is a commitment to purchase a promissory note, or “Note,” from Prosper Funding, the payments on which will be dependent on the payments Prosper Funding receives on the loan requested in the listing. If a listing receives enough lender member commitments to be funded, WebBank, an FDIC-insured, Utah industrial bank, will originate the loan requested and then sell it to Prosper Funding and, at the same time, Prosper Funding will sell a Note to each lender member that made a commitment towards the loan in the principal amount of that commitment. A borrower member who posts a loan listing is referred to as an “applicant” and an applicant who obtains a loan through the platform is referred to as a “borrower.”

In order to post a listing, an applicant must first complete a loan application. PMI then obtains a credit report on the applicant and uses data from that report as well as data supplied by the applicant to assign a risk grade to the listing, which is called a “Prosper Rating.” The listing is then posted on the platform. The format for listings is shown below. The images are not from actual listings, but rather depict hypothetical listings created for purposes of illustration in this prospectus. Each listing includes the Prosper Rating, selected items from the applicant’s credit report, intended use of the potential loan, plus information regarding any previous loans obtained by the applicant through the platform.

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Lender members can bid on listings in amounts ranging from the entire loan amount requested to as little as $25. Thus, it is typical to have multiple lender members bid on a single listing. As the listing is funded, the listing will show the amount of commitments made towards that potential loan by lender members.

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One unique aspect of peer-to-peer lending is that it allows lender members who are friends and family of an applicant to bid on that applicant’s listing. Friends and family bids can signal that a stronger social bond exists that could influence repayment rates. Friends and family can also vouch for the applicant’s character. These bids are also shown on the listing page for all lender members to review, as shown below.1

1 Neither Prosper Funding nor PMI verifies claims by a lender member that he is a friend or family member of an applicant.

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The registration, processing and payment systems are automated and electronic. Prosper Funding has no physical branches, no deposit-taking and interest payment activities and limited loan underwriting activities. Prosper Funding’s website provides detailed information about the platform, including detailed fee information, the full text of the member legal agreements, help pages and white papers. In addition to the customer support materials available on the website, Prosper Funding makes additional customer support available to members by email and phone (which services are currently handled by PMI as servicer pursuant to the Administration Agreement). Its customer support team is currently located at its headquarters in San Francisco, California.

~~ABOUT PROSPER~~PMI will attract lender members and borrowers to www.prosper.com through a variety of sources, including referrals from other parties (such as online communities, social networks and marketers), search engine results and online and offline advertising. Prosper Funding is not dependent on any one source of traffic to its website. As of June 30, 2012, the website was receiving an average of approximately 364,193 unique visitors per month.

Prosper Funding generates revenue by charging lender members ongoing servicing fees on the Notes they have purchased, and from licensing fees paid by PMI for Prosper Funding’s licensing of the platform to PMI. PMI generates revenue by collecting fees from Prosper Funding under the Administration Agreement and by collecting origination fees from WebBank as compensation for its loan origination activities on WebBank’s behalf.

Platform Participants, Registration Requirements and Minimum Credit Criteria

~~See “Item 1. Business” beginning on page 1~~All platform participants must register with Prosper Funding and agree to the platform’s rules and terms of ~~our Annual Report on Form 10-K/A~~use, including consent to receipt of disclosures electronically. At the time of registration, individuals or authorized institutional agents must provide their name, address and an email address. After responding to an email verification, registrants must agree to the terms and conditions (including the applicable registration agreement) for the ~~fiscal year ended December 31, 2011,~~specific role for which they are registering.

Borrower Members

A borrower member may be any natural person at least 18 years of age who is ~~incorporated~~a U.S. resident in a state where loans through the platform are available, with a bank account and a social security number. After passing the anti-fraud and identity verification process, borrower members can request unsecured borrower loans at interest rates set by ~~reference~~PMI. PMI sets minimum credit and other credit guidelines for borrowers, as discussed in the risk grading section.

When an applicant requests a loan, PMI first evaluates whether the applicant meets the underwriting criteria established in conjunction with WebBank. WebBank makes loans to borrowers and then sells and assigns the promissory notes evidencing those loans to Prosper Funding. The underwriting criteria apply for all borrower loans originated through the platform and may not be changed without WebBank’s consent. The underwriting criteria require that borrowers have a minimum credit score of a specified threshold amount (currently 640, except that the minimum is 600 for borrower members who (1) previously obtained a borrower loan and paid off the loan in full, or (2) are seeking a second loan and are otherwise eligible for a second loan), and have no prior charge-offs on loans originated through the platform. In connection with the identity and anti-fraud verification process for applicants, PMI verifies the deposit account into ~~this prospectus.~~which the loan proceeds will be deposited, to determine that the applicant is a holder of record of the account. Even if a listing receives bids that equal or exceed the minimum amount required to fund, PMI will cancel the listing if it is unable to verify the applicant’s account. While PMI attempts to authenticate each platform participant’s identity, its fraud checks could fail to detect identity theft, fraud and inaccuracies. See “Risk Factors—Risks Related to Borrower Default” for more information.

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Lender Members

Lender members are individuals and institutions that have the opportunity to buy Notes. Lender members must register on the platform. During lender registration, potential lender members must authorize Prosper Funding, or its agent, to obtain their credit report for identification purposes. Lender members also must consent to any applicable tax withholding statement and must agree to the terms and conditions of Prosper Funding’s website. Lender members must also enter into a lender registration agreement with Prosper Funding, which agreement governs all sales of Notes to lender members. Lender members are not required to give credit information to the same extent as borrower members. Both individuals and institutions may register as lender members. An individual lender member must be a natural person at least 18 years of age and a U.S. resident, must provide his or her social security number and may be required to provide his or her state driver’s license or state identification card number. Institutions must provide their taxpayer identification number. At the time a lender member registers with Prosper Funding, the lender member must satisfy any minimum financial suitability standards and maximum investment limits established for the platform or the Note Trader platform by the state in which the lender member resides. Prior to bidding on a listing, lender members must transfer funds to an account maintained on the platform (a “funding account”). The funding account holds all funds supporting a lender member’s bids and all Note payments payable to the lender member are deposited in the funding account.

Relationship with WebBank

WebBank is a FDIC-insured, Utah-chartered industrial bank that originates all loans made through the platform. WebBank and PMI are parties to a Loan Account Program Agreement, under which PMI manages the operations of the platform that relate to the submission of loan applications by potential borrowers, the making of related loans by WebBank and the funding of such loans by WebBank in exchange for a fee equal to the origination fee charged by WebBank. In connection with this offering, WebBank, Prosper Funding and PMI will enter into a Loan Sale Agreement, under which WebBank will sell and assign the promissory notes evidencing the borrower loans to Prosper Funding. As consideration for WebBank’s agreement to sell and assign the promissory notes, Prosper Funding will pay WebBank a monthly fee in addition to the purchase price of the promissory notes themselves. Under the Loan Account Program Agreement, PMI will indemnify WebBank with respect to any damages arising from WebBank’s participation in the origination of borrower loans as contemplated in the Loan Account Program Agreement.

Risk Management

PMI’s risk management has evolved from its inception. PMI has consistently worked to improve the information provided to lenders in order to help them make sound investment decisions. A major source of improvement has been to progressively incorporate the historical performance of loans originated by PMI into the Prosper Ratings as more loan outcome data becomes available over time. PMI intends to continuously refine the proprietary rating system.

Prosper Rating Assigned to Listings

Each listing is assigned a Prosper Rating. The Prosper Rating is a letter that indicates the expected level of risk associated with the listing. Each letter grade corresponds to an estimated average annualized loss rate range. The rating associated with a listing reflects the loss expectations for that listing as of the time the rating is given. This means that otherwise similar borrowers may have different Prosper Ratings at different points in time as the Prosper Rating is updated to incorporate more relevant information. There are currently seven Prosper Ratings, but this, as well as the loss ranges associated with each, may change over time as the marketplace dictates. PMI intends to regularly update the loss rates associated with the Prosper Ratings to reflect the ongoing actual performance of historical borrower loans. The updates will occur at least annually.

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The current Prosper Ratings and the estimated loss ranges associated with them are as follows:

Prosper Rating		Est. Avg. Annual Loss Rate
AA		0.00% - 1.99 %
A		2.00% - 3.99%
B		4.00% - 5.99%
C		6.00% - 8.99%
D		9.00% - 11.99%
E		12.00% - 14.99%
HR		>=15.00%

The estimated loss rate for each listing is based primarily on the historical performance of borrower loans with similar characteristics and is primarily determined by two scores: (1) a custom Prosper Score, and (2) a credit score obtained from a credit reporting agency. The custom Prosper Score is updated periodically to include new information that is predictive of borrower risk as it becomes available or as the evidence supporting a particular datum becomes strong enough to merit its inclusion in the custom Prosper Score.

If a particular piece of information is found to be highly predictive of a borrower’s risk prior to a custom Prosper Score re-development, then it may be added to the rating process as an overlay until its impact on borrower risk is sufficiently captured by the combination of the custom Prosper Score and the credit bureau score. Throughout 2011, for instance, increasingly strong evidence continued to emerge that successful performance on a previous loan through the platform was a strong predictor of borrower risk (borrowers having successfully performed on a previous loan through the platform were much less likely to default on a new loan than comparable borrowers who had not successfully repaid a loan through the platform). Once this evidence was sufficiently robust, the presence of a second loan became an integral determinant of a borrower’s Prosper Rating.

Prosper Score

The Prosper Score predicts the probability of a borrower loan going “bad,” where “bad” is the probability of going more than 60 days past due within fifteen months of loan origination. To create the Prosper Score, PMI developed a custom risk model using its historical data. PMI built the model on its borrower population so that it would incorporate behavior that is unique and inherent to that population. In contrast, a credit score obtained from a credit reporting agency is based on a much broader population, of which borrowers through the platform are just a small subset. PMI uses both the Prosper Score and a credit score to assess the level of risk associated with a listing.

To build and validate the custom risk model, PMI used loans it booked from April 2007 through October 2008 and measured their performance for the fifteen months following origination. PMI analyzed variables available at the time of listing for potential inclusion in the final model. Potential variables included those from the credit report and also those provided by the borrower. PMI dropped or kept variables in the final model based on their contribution and stability over time, and went through a number of iterations before finalizing the model in its current form. Some of the variables included in the final model are:

- Total Inquiries

- Inquiries last 6 months

- Total Trades

- Trades opened <= 6 months

- Trades Never Delinquent or Derogatory

- Trades with Delinquent Balance

- Available Credit on Open Bankcards

- Debt-to-Income Ratio

- Bankcard Utilization

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The model assigns weights to all of its variables based on their value in predicting the likelihood of a loan going bad. For a given listing, the model estimates the probability of the related loan becoming bad, which is called the listing’s “probability of bad.” The probability of bad for a listing is then mapped to a Prosper Score, which is displayed as part of that listing. Prosper Scores range from 1 to 10, with 10 being the best, or lowest risk value. The probability of bad ranges and the corresponding Prosper Scores are as follows.

Probability Bad		Prosper Score
> 24.84%		1
20.33 < x <=24.84%		2
17.05 < x <= 20.33%		3
14.42 < x <= 17.05%		4
12.00 < x <= 14.42%		5
10.00 < x <= 12.00%		6
8.17 < x <= 10.00%		7
5.98 < x <= 8.17%		8
4.50 < x <= 5.98%		9
0.00 < x <= 4.50%		10

For example, a probability of bad of 3.29% equates to a Prosper Score of 10, a probability of bad of 12.00% equates to a Prosper Score of 6, and a probability of bad of 37.54% equates to a Prosper Score of 1. The probability of bad ranges are likely to change over time as additional performance data is acquired.

Credit Score

In addition to the Prosper Score, another major element used to determine the Prosper Rating for a listing is a credit score from a consumer reporting agency. PMI currently uses Experian’s Scorex PLUS score, although it may use one or more different scores in the future. The minimum credit score required for a borrower to post a listing is 640, except for borrower members who (i) previously obtained a loan through the platform and paid off the loan in full, or (ii) are seeking a second loan while their first loan is still outstanding and are otherwise eligible for such second loan, for whom the minimum score required is 600.

PMI obtains a borrower’s credit score at the time his listing is created, unless it already has a credit score on file that is not more than thirty days old. This credit score is used to determine the Prosper Rating for the listing, and the range that credit score falls within is also included in the listing. If available, PMI obtains updated credit scores on a monthly basis for borrowers with outstanding loans, and it includes the applicable score ranges by month in listings on the Note Trader platform. Neither Prosper Funding nor PMI discloses the borrower’s exact credit score to any of Prosper Funding’s members, except for the borrower himself.

Assigning Estimated Loss Rates

Estimated loss rates are based on the historical performance of loans originated through the platform with similar characteristics and are primarily determined by Prosper Scores and credit scores. The starting point for this determination is the base loss rate table, shown below, which PMI created by dividing the range of Prosper Scores and credit scores into multiple segments and combining them into a single grid. A base loss rate is estimated for each cell in the table, based on the historical performance of loans originated on the platform that occupied the same cell (i.e., that had the same point of intersection for their Prosper Score and credit score). Cells are grouped together due to small volume, similar behavior or both. PMI reviews loan performance on a monthly basis to see how the loss estimates compare to the actual performance of borrower loans, and makes any adjustments to those estimates it deems necessary based on such reviews. Please refer to the website for the estimated base loss rate table currently in use. Estimated base loss rates for the cells in the table below are for PMI Borrower Loans as of June 30, 2012.

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	Experian Scorex Plus Score
Prosper Score	600-619	620-639	640-649	650-664	665-689	690-701	702-723	724-747	748-777	778+
1	29.90%	29.90%	24.90%	24.90%	24.90%	24.90%	24.90%	24.90%	19.90%	19.90%
2	29.90%	24.90%	24.90%	19.90%	19.90%	19.90%	19.90%	19.90%	19.90%	19.90%
3	24.90%	24.90%	24.90%	19.90%	19.90%	16.50%	16.50%	16.50%	16.50%	16.50%
4	19.90%	19.90%	19.90%	19.90%	16.50%	16.50%	16.50%	16.50%	16.50%	16.50%
5	19.90%	19.90%	19.90%	19.90%	16.50%	16.50%	16.50%	11.90%	11.90%	11.90%
6	19.90%	19.90%	19.90%	14.70%	14.70%	11.90%	11.90%	8.90%	8.90%	8.90%
7	19.90%	19.90%	19.90%	8.90%	8.90%	8.90%	8.90%	8.90%	8.90%	8.90%
8	14.70%	14.70%	14.70%	5.65%	5.65%	5.65%	5.65%	5.65%	5.65%	3.30%
9	14.70%	14.70%	14.70%	5.65%	5.65%	5.65%	5.65%	3.30%	3.30%	3.30%
10	14.70%	14.70%	14.70%	5.65%	5.65%	5.65%	5.65%	3.30%	3.30%	1.00%

The table above applies to borrowers seeking their first loan through the platform. Although borrowers with credit scores below 640 are depicted in the table above, borrowers seeking a first loan whose credit score is below 640 are not currently eligible for a loan on the platform. PMI can make adjustments to the base loss rate to determine the final loss rate. The final loss rate determines the Prosper Rating. PMI currently makes adjustments if the applicant has already been a borrower on the platform and based on loan term. The value of the adjustments are based on historical PMI data, where available, as well as observed industry performance. An example of a potential adjustment is shown below:

Here is an example of how the final loss rate and Prosper Rating for a loan listing would be calculated:

- Applicant credit bureau score = 715 and Prosper score = 9

- Applicant has a previous Prosper loan

Base Loss Rate:		5.65%
Adjustments:
	-Previous Loan:	-3.65%
Final Loss Rate:		2.00%
Prosper Rating:		A

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Calculating Loss Estimates

Loss rates for a particular group of loans will be a function of the group’s delinquency and loss behavior over time, pre-payment behavior over time, and responsiveness to collections activity. For loans originated through the platform, the largest driver of the loss rate is the rate at which a group of loans becomes delinquent and charges off. A loan becomes “charged off” and is considered a loss when it becomes 121+ days past due.

~~SUMMARY OF~~ ~~MATERIAL AGREEMENTS~~Modeling Loss Rates. The loss rate is the balance-weighted average of the monthly loss rates for the group of loans over the term of the loans. The gross loss rate is adjusted for principal recovery net of collection expenses to arrive at a net loss rate.

Estimating Losses. PMI determines the loss component of the loss rate calculation by analyzing losses for historical PMI loans and adjusting to reflect anticipated deviations from historical performance that may exist due to the current macro-economic or competitive environment. Changes in delinquency and losses have the largest impact on the expected loss rate of a group of loans, and so changes in loan performance are monitored on at least a monthly basis.

Calculating Average Balance. To calculate the average balance for each period, PMI used the amount of loan principal on loans that are still open and have not been charged-off or paid off. As loan payments are made, the principal balance of each loan declines over time.

When a loan pays faster than its amortization schedule (pre-payment), the portion of the principal that is pre-paid is no longer included in the outstanding balance for subsequent periods. Once a loan has been charged-off, the principal associated with this loan is considered a credit loss and is no longer included in the outstanding periodic balance.

Collection Expense and Recovery Adjustments. When an account becomes more than 30 days past due, it is referred to a collection agency. Collection agencies are compensated by keeping a portion of the payments they collect based on a predetermined schedule. Once an account has been charged-off, any subsequent payments received or proceeds from the sale of the loan in a debt sale are considered recoveries and reduce the amount of principal lost.

Comparing Estimated Loss Rates to Actual Losses

Loan performance is reviewed on a monthly basis to determine how loss estimates compare to the actual performance of loans. Actual performance relative to expectations is a major factor when deciding on adjustments to loss expectations going forward. The graphs below show the expected versus actual cumulative dollar loss rates by Prosper Rating for PMI Borrower Loans booked from July 13, 2009 through September 30, 2011. Performance is as of June 30, 2012. Loss performance is tracked by vintage and the rating segments shown are those that appeared on the note at the time it was funded. The graphs include only quarterly vintages where all PMI Borrower Loans originated during that period have been outstanding at least 10 months.

The plot below shows the vintage cumulative losses of all loans originated during the period of interest and compares those losses to an origination-dollar weighted average expectation. Aside from the 2012Q2 vintage of originated loans, all vintages are tracking at or below the average cumulative loss expectation.

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Note: Expectation line reflects the weighted average expected loss rate across all vintages at the time of origination

The remaining plots show the actual vintage performance within each Prosper Rating grade. The rating segments are divided according to the rating that the loan was given at the point it was originated. All loans underwritten on the platform for the period of interest are shown.

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Note: Expectation lines represent the high end of the estimated loss rate range for each Prosper Rating, except for HR, where the high end of the range is 100% and we have set the expectation curve at 24.75%.

In aggregate, actual losses for each rating grade are well-calibrated to expectations. Some vintages come in slightly higher than expectations and some slightly lower but there is no evidence of losses systematically deviating from expectations. The one exception to this is the performance of E rated notes in 2011. These notes have losses that are consistently higher than expected. Actions were taken throughout 2011 and early 2012 based on the observed systematic underperformance in this rating segment. Notice that the 2011Q3 losses are closer to expectations than 2011Q1 and 2011Q2.

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Please note that the historical performance of PMI Borrower Loans may not be indicative of the future performance of Prosper Funding borrower loans. See “Risk Factors—Risks Related to Us, the Platform and Our Ability to Service the Notes” for more information.

Criteria for Applying for a Second Loan

Borrowers may have up to two loans outstanding at any one time, provided that the aggregate outstanding principal balance of both borrower loans does not exceed the then-current maximum allowable loan amount for borrower loans (currently $25,000). Any outstanding loan made through the platform is treated as a “loan” for purposes of this two loan limit. Currently, to be eligible to obtain a second borrower loan while an existing loan is outstanding:

Borrowers must be current on their existing borrower loan, and must not have been more than 30 days past due in making their most recent monthly borrower loan payments for a specified number of months (between six and twelve, depending on the borrower’s credit score range at time the existing loan was obtained);

Borrowers may not post a listing for a second borrower loan within six to twelve months (depending on the borrower’s credit score range at time the existing loan was obtained) following the date of origination of their existing borrower loan; and

Borrower’s credit score must be 600 or more.

Underwriting requirements for borrower loans, including eligibility requirements for second loans, are subject to change from time to time.

Maximum Loan Amount

The maximum loan amount for a listing is determined by the applicant’s Prosper Rating. The table below shows the maximum loan amount for each Prosper Rating:

Prosper Rating	Maximum Loan Amount
AA	$	25,000
A		25,000
B		15,000
C		15,000
D		15,000	��
E		4,000
HR	$	4,000

Borrower Identity and Financial Information Verification

Prosper Funding reserves the right in its member agreements to verify the accuracy of all statements and information provided by borrower members and lender members in connection with listings, commitments and borrower loans. It may conduct its review at any time before, during or after the posting of a listing, or before or after the funding of a borrower loan. If it is unable to verify material information with respect to an applicant or listing, Prosper Funding will cancel or refuse to post the listing or cancel any or all commitments against the listing. Prosper Funding may also delay funding of a borrower loan in order to verify the accuracy of information provided by an applicant in connection with the listing, or to determine whether there are any irregularities with respect to the listing. If Prosper Funding identifies material misstatements or inaccuracies in the listing or in other information provided by the applicant, it will cancel the listing or related loan.

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PMI verifies the identity of every borrower who obtains a loan through the platform using a combination of documentary and non-documentary methods. It asks each applicant to submit a copy of her current driver’s license, passport or other government-issued, photo identification card, which are authenticated using third-party reference materials. In addition, the information contained in the applicant’s credit report is compared with the information contained in the application, and the application information is run through a fraud database. Finally, PMI requires the applicant to submit bank statements, cancelled checks or other documentary evidence to verify the accuracy of her bank account information. To the extent any of these processes identify inconsistencies between the information submitted by the applicant and the information contained in another data source, the applicant must submit documentation to resolve the discrepancy to PMI’s satisfaction. For example, the applicant might be required to submit a recent utility bill to reconcile a discrepancy between the current address listed in her application and the one listed in her credit report. For the small number of applicants who do not have a current, government-issued photo identification card, PMI may rely on the other screening processes described above to verify their identity. But PMI obtains and authenticates photo identification from the great majority of applicants, and performs the other processes described above for all borrowers. If it is unable to verify the identity of an applicant in the manner described above, PMI will cancel the applicant’s listing or pending loan.

In addition to the identity verification processes just described, PMI verifies income and employment information for a subset of applicants based on a proprietary algorithm. The intention of this algorithm is to identify instances where the applicant’s self-reported income is highly determinative of the applicant’s Prosper Rating. The algorithm gives greatest weight to the following factors:

Prosper Rating;

loan amount;

stated income; and

debt-to-income ratio.

To verify an applicant’s income, PMI requires the applicant to submit a paystub from within the last thirty days and a W-2 or Form 1099 from the prior calendar year. To verify an applicant’s employment, PMI obtains confirmation from the human resources department of the applicant’s employer, verbally or by email, or phones the main phone number of the applicant’s employer and confirms that it can be connected directly to the applicant’s work number from that main number.

Between July 14, 2009 and June 30, 2012 (based on start time of the applicable bidding period), PMI verified employment and/or income on approximately 42% of the PMI Borrower Loans originated on the platform on a unit basis (11,910 out of 28,410) and approximately 64% of originations on a dollar basis ($117,706,420 out of $183,333,286). Breaking these numbers down by Prosper Rating:

for PMI Borrower Loans with a Prosper Rating of AA, A or B, PMI verified income and/or employment information on approximately 60% of the loans originated on a unit basis (6,050 out of 10,129) and approximately 80% of originations on a dollar basis ($69,028,878 out of $86,100,452);

for PMI Borrower Loans with a Prosper Rating of C or D, PMI verified income and/or employment information on approximately 46% of the loans originated on a unit basis (4,696 out of 10,142) and approximately 64% of originations on a dollar basis ($41,540,861 out of $65,234,094); and

for PMI Borrower Loans with a Prosper Rating of E or HR, PMI verified income and/or employment information on approximately 14% of the loans originated on a unit basis (1,164 of 8,139) and approximately 22% of originations on a dollar basis ($7,136,681 out of $31,998,740).

PMI will continue to use the same criteria for selecting listings for employment or income verification that it used for PMI Borrower Loans. In addition, under the Administration Agreement, PMI is required to perform borrower identity and financial information verification services in the manner and to the extent contemplated in this section. Please note, however, that historical data regarding PMI Borrower Loans may not be indicative of the future characteristics of Prosper Funding’s borrower loans. See “Risk Factors—Risks Related to Prosper Funding and PMI, the Platform and Prosper Funding’s Ability to Service the Notes” for more information.

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If an applicant fails to provide satisfactory information in response to an income or employment verification inquiry, PMI will (a) request additional information from the applicant, (b) cancel the applicant’s listing or (c) refuse to proceed with the funding of the loan. Where PMI chooses to verify an applicant’s income or employment information, the verification is normally done after the applicant’s listing has already been posted. This allows PMI to focus its verification efforts on the listings most likely to fund, and increases the percentage of funded loans that are subject to verification.

When PMI identifies inaccurate employment or income information in an application or listing that has resulted in the applicant obtaining a different Prosper Rating or interest rate for her listing than she would have obtained if she had provided the correct information, PMI cancels the listing. If PMI identifies inaccurate information in a listing that does not trigger cancellation of the listing, it does not update the listing to include the corrected information. Cancellation automatically triggers a notice to the applicant and any lender members who made commitments that the listing has been cancelled, and PMI sends an adverse action notice to the applicant indicating the reasons for cancellation. PMI makes the funds committed by the lender members on the cancelled listing immediately available to them for bidding on other listings.

PMI generally does not verify information included by applicants in their listings other than identity, income and employment information. Similarly, it does not verify the information in any recommendations from an applicant’s Prosper friends or putative friends and family. PMI derives the applicant’s debt-to-income ratio, or “DTI,” from a combination of the applicant’s self-reported income and information from the applicant’s credit report. The credit data that appears in listings is taken directly from the applicant’s credit report. Although applicants may provide proof of homeownership to establish homeownership status, in most instances, homeownership status is derived from the credit report as well. For example, if the credit report reflects an active mortgage loan, the applicant is presumed to be a homeowner. Lender members should not rely on unverified information provided by applicants.

Prosper Funding or PMI’s participation in funding loans on the platform from time to time has had, and will continue to have, no effect on the income and employment verification process, the selection of loan requests verified or the frequency of income and employment verification.

PMI is continuously looking for ways to improve the verification procedures in a cost-effective manner in order to increase the repayment performance of loans. See “Risk Factors—Risks Related to Borrower Default—Information supplied by applicants may be inaccurate or intentionally false. Information regarding income and employment is not verified in many cases” for more information.

Note Repurchase and Indemnification Obligations

Under the lender registration agreement, in the event of a material default under a series of Notes due to verifiable identity theft of the named borrower’s identity, Prosper Funding will repurchase the Note or indemnify the Note holder. Prosper Funding’s indemnification obligation will apply only if the relevant Note is at least 120 days past-due; provided, that Prosper Funding may in its sole discretion elect to take action at an earlier time. The determination of whether verifiable identity theft has occurred is in Prosper Funding’s sole discretion and Prosper Funding may require proof of identity theft, such as a copy of a police report filed by the person whose identity was wrongfully used to obtain the fraudulently-induced borrower loan, an identity affidavit or a bank verification letter (or all of the above) in order to determine that verifiable identity theft has occurred. This remedy for identity fraud only provides protection against identity theft; in no way is it a guarantee of a borrower’s self-reported information (beyond identity) or a borrower’s creditworthiness. Prosper Funding expects the incidence of identity fraud on the platform to be low because of the identity verification process. As of June 30, 2012, PMI had experienced identity fraud cases affecting 38 PMI Borrower Loans since inception. In the cases of identity theft PMI has experienced, it received a police report and identity theft affidavit from the victim evidencing that identity theft had occurred. Please note that historical data regarding PMI Borrower Loans may not be indicative of the future characteristics of Prosper Funding’s borrower loans. See “Risk Factors—Risks Relating to Prosper Funding and PMI, the Platform and Prosper Funding’s Ability to Service the Notes” for more information.

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Prosper Funding has the exclusive right to investigate claims of identity theft and determine, in its sole discretion, whether verifiable identity theft has occurred. As PMI is the sole entity with the ability to investigate and determine verifiable identity theft, which triggers Prosper Funding’s repurchase obligation, a conflict of interest exists as the denial of a claim of identity theft would save Prosper Funding from its repurchase or indemnification obligation and also excuse PMI from its obligation, under certain circumstances, to provide Prosper Funding with the funds required to effect such repurchase or indemnification. There are, however, three factors that mitigate the risk of this conflict by incentivizing PMI to vigorously investigate claims of identity theft. Without the protection offered by this repurchase or indemnification obligation, fewer potential lender members will have the confidence to participate on the platform, limiting the growth and long term profitability of both Prosper Funding and PMI. In addition, the agreements with WebBank include a requirement—and accompanying audit function—to insure that claims of identity theft are thoroughly investigated and accurately reported. Finally, California statutes include severe penalties owed to the victim of identity theft if it is shown that a claim of identity theft was not adequately investigated or frivolously dismissed.

In the event Prosper Funding breaches any of its other representations and warranties in the lender registration agreement pertaining to the Notes, and such breach materially and adversely affects a series of Notes, or such breach causes a lender member to purchase a Note he otherwise would not have purchased or to purchase a Note that is materially different from the Note he otherwise would have purchased, Prosper Funding will either indemnify the lender members who purchased such Notes from Prosper Funding, repurchase the series of Notes from holders who purchased such Notes from Prosper Funding or cure the breach. Such a breach may occur, for example, where Prosper Funding miscalculated the Prosper Score, resulting in the wrong Prosper Rating appearing in the listing. Prosper Funding is not, however, under any obligation to cure, indemnify or repurchase a series of Notes because a correctly determined Prosper Score or Prosper Rating fails to accurately predict the actual losses on a borrower loan. In addition, Prosper Funding is not obligated to repurchase a Note or indemnify a lender member whose investment is not realized in whole or in part due to false or inaccurate statements or omissions of fact in a listing, whether in credit data, borrower’s representations, user recommendations, group affiliations or similar indicia of borrower intent and ability to repay the loan. If Prosper Funding repurchases a Note, it will only return the outstanding principal balance to the lender member and not unpaid interest. If Prosper Funding repurchases any Notes, PMI will concurrently repurchase the related PMI Management Contracts for zero consideration.

Historical Performance of PMI Borrower Loans

The performance of borrower loans is a function of the credit quality of borrowers and the risk and return preferences of lender members. Lender members can choose to pursue a variety of bidding strategies, including strategies that may or may not maximize the return on their investment. When making commitment decisions, lender members consider applicants’ Prosper Ratings, credit scores, debt-to-income ratios and other credit data and information displayed with listings. See “Risk Factors—Risks Related to Borrower Default.”

The graph below displays the overall level of delinquency for the PMI Borrower Loan portfolio on a calendar basis. Loss estimates for the portfolio on a vintage basis may be found in the section “Comparing Estimated Loss Rates to Actual Losses”. Loans that are more than 30 days past due are considered to be severely delinquent due to the significant decrease in the likelihood of receiving future payment once a loan has missed two payments.

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The following table presents aggregated information as of June 30, 2012, grouped by Prosper Rating, for all PMI Borrower Loans originated on the platform from July 13, 2009 through June 30, 2012. With respect to delinquent PMI Borrower Loans, the table shows the entire amount of the principal remaining due (not just that particular payment) as of June 30, 2012.

Loan Originations

July 13, 2009 - June 30, 2012

(as of June 30, 2012)

			Total Loan Originations						Current Loans								1-30 Days Past Due
Prosper Rating			Number			Amount			Number			Origination Amount			Outstanding Principal		Number			Origination Amount			Outstanding Principal
AA				1,861		$	16,441,926			1,102		$	11,394,036		$	7,851,001		8		$	65,000		$	37,771
A				4,229			36,018,483			3,156			29,476,943			23,214,675		34			277,104			203,000
B				4,039			32,865,905			3,316			27,726,464			23,360,410		46			298,951			248,434
C				3,752			26,625,917			2,827			21,611,980			18,721,527		61			453,247			353,388
D				6,390			38,256,082			4,360			28,229,224			22,990,315		142			814,317			638,068
E				4,084			18,004,700			2,701			11,930,143			9,374,050		123			564,136			457,785
HR				4,055			13,825,520			2,880			9,915,377			8,331,154		108			391,234			326,644

				28,410		$	182,038,534			20,342		$	140,284,168		$	113,843,131		522		$	2,863,988		$	2,265,090
			avg loan size:			$	6,408

percent of total										71.6	%		77.1	%				1.8	%		1.6	%



			Paid In Full						31+ Days Past Due								Defaulted 1
Prosper Rating			Number			Origination Amount			Number			Origination Amount			Outstanding Principal		Number			Origination Amount			Net Charged Off Principal
AA				709		$	4,627,685			5		$	25,405		$	9,874		37		$	329,800		$	247,000
A				890			5,289,590			30			277,280			202,023		119			697,566			528,792
B				548			3,838,010			41			351,089			298,913		88			651,390			521,318
C				670			3,425,865			52			346,956			275,613		142			787,868			628,728
D				1,219			5,703,414			195			1,276,974			1,066,286		474			2,232,153			1,865,922
E				734			3,038,592			143			705,050			590,570		383			1,766,779			1,559,004
HR				634			2,079,954			126			426,513			371,152		307			1,012,441			843,611

				5,404		$	28,003,112			592		$	3,409,267		$	2,814,430		1,550		$	7,477,998		$	6,194,374

percent of total				19.0	%		15.4	%		2.1	%		1.9	%				5.5	%		4.1	%

	1	includes all loans >120 days past due
	2	Only includes loans where the bankruptcy notification date is prior to the date the loan became 121 days past due. If we were notified of a bankruptcy after the loan reached 121 days past due, it is included in the "Default due to Delinquency" totals.															Default due to Delinquency:
																					1,382		$	5,607,549


																	Default due to Bankruptcy2 :
																				$	168		$	586,825

From July 13, 2009 through June 30, 2012, 28,410 PMI Borrower Loans were originated on the platform with an average original principal amount of $6,408 and an aggregate original principal amount of $182,038,534. As of June 30, 2012, 71.6% of these loans were current or had not reached their first billing cycle and 19.0% were paid in full, 1.8% were 1 to 30 days past due, 2.1% were more than 30 days past due, and 5.5% had defaulted. A PMI Borrower Loan is considered to have defaulted when it is more than 120 days past due or has been discharged in bankruptcy. Of these 28,410 loans, 3,074 loans, or 11%, have been greater than 15 days past due at any time, 2,480 loans, or 9%, have been more than 30 days past due at any time, and 2,013 or 7%, have been more than 60 days past due at any time.

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Of PMI Borrower Loans originated after July 13, 2009, 1,550 have defaulted as of June 30, 2012, equaling a total net defaulted amount of $7,477,998. Of these 1,550 defaulted loans, the borrowers of 168 of the loans have filed for bankruptcy, resulting in a net defaulted amount of $586,825.

The data in the preceding tables regarding PMI Borrower Loans may not be representative of the loss experience that will develop for Prosper Funding’s borrower loans. In addition, the data in the preceding tables regarding prepayments may not be representative of the prepayments Prosper Funding expects over time.

The following table presents aggregate information, as of June 30, 2012, regarding the results of PMI’s collection efforts for PMI Borrower Loans originated after July 13, 2009 that became more than 30 days past due at any time, grouped by Prosper Rating.

Prosper Rating	Loans In Collections		Origination Amount		Aggregate Amount Sent to Collections		Gross Amount Collected on Accounts sent to Collections			Number of Loans Charged-off		Gross Aggregate Principal Balance of Loans Charged-Off		Gross Amount Recovered on Loans Charged-Off		Net Aggregate Charge-Off
AA		53	$	398,978	$	25,848	$	7,869			37	$	247,000	$	-	$	247,000
A		179		1,138,453		71,511		37,011			119		532,365		3,573		528,792
B		152		1,154,480		76,883		23,559			88		526,543		5,225		521,318
C		231		1,301,823		95,351		50,904			142		640,037		11,309		628,728
D		773		4,002,102		321,496		172,634			474		1,908,310		41,986		1,866,324
E		607		2,858,788		259,895		137,228			383		1,577,861		18,284		1,559,577
HR		493		1,637,635		143,807		71,777			307		856,966		13,094		843,872

		2,488	$	12,492,258	$	994,790	$	500,981	*		1,550	$	6,289,082	$	93,471	$	6,195,611

* This amount excludes collection agency payments that were subsequently returned by the bank.

PMI may alter the terms or make principal reductions on some loans, which may include cases where a reduction in the initial interest rate is required by law. The Servicemembers’ Civil Relief Act requires interest rates to be reduced to 6% while a borrower in the armed forces is on active duty.

PMI Borrower Loans

The following table presents aggregated information about borrowers for PMI Borrower Loans originated over the period from July 13, 2009 to June 30, 2012, grouped by Prosper Rating.

Prosper Rating	Number		Amount		Average Loan Size		Weighted Average Lender Yield			Weighted Average Borrower Rate			Weighted Average Borrower APR
AA		1,861	$	16,441,926	$	8,835		7.59	%		8.59	%		9.08	%
A		4,229		36,018,483		8,517		10.66	%		11.66	%		13.97	%
B		4,039		32,865,905		8,137		15.70	%		16.71	%		19.18	%
C		3,752		26,625,917		7,096		20.66	%		21.66	%		24.79	%
D		6,390		38,256,082		5,987		25.19	%		26.19	%		29.58	%
E		4,084		18,004,700		4,409		30.30	%		31.30	%		35.11	%
HR		4,055		13,825,520		3,409		30.93	%		31.93	%		35.64	%
Total		28,410	$	182,038,534	$	6,408		19.29	%		20.29	%		23.07	%

The following table presents aggregated information about borrowers for PMI Borrower Loans originated over the period from July 13, 2009 to June 30, 2012, grouped by Prosper Rating. The information for each borrower was obtained from a credit reporting agency at the time the borrower’s loan application was submitted. PMI has not independently verified this information:

Prosper Rating	Average Experian ScoreExPlus Score		Average Number of Current Delinquencies		Average Number of Open Credit Lines		Average Number of Total Credit Lines
AA		803		0.04		8.79		26.18
A		754		0.14		8.90		26.06
B		719		0.26		8.29		25.02
C		706		0.33		8.70		27.18
D		694		0.43		8.01		25.56
E		671		0.71		8.22		27.44
HR		687		0.65		7.84		26.43

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Please note that historical data regarding PMI Borrower Loans may not be indicative of the future characteristics of Prosper Funding’s borrower loans. See “Risk Factors—Risks Related to Prosper Funding and PMI, the Platform and Prosper Funding’s Ability to Service the Notes” for more information.

Posted Borrower Loan Listings

Once a loan listing is completed by an applicant, the listing is posted on the website and then becomes available for bidding by lender members. A loan listing is a request by the applicant for a borrower loan in a specified amount.

When creating a listing, the applicant may opt for partial funding. Partial funding means the applicant’s loan does not have to receive bids for 100% of the amount requested to fund, but can be funded if it receives bids for 70% or more of the amount requested. Each listing indicates whether the applicant has elected partial funding and, if so, the minimum amount of bids required for the loan to fund. Prosper Funding may change the percentage threshold for partial funding, which is currently set at 70%, from time to time. Any such change will be disclosed on the website, and will only affect listings created after such change is implemented.

Borrower loans are unsecured obligations of individual borrowers with an interest rate determined by Prosper Funding and with a specified loan term, currently set at one, three or five years, but which Prosper Funding may in the future extend to between three months to seven years. Applicants may currently request loans within specified minimum and maximum principal amounts (currently, between $2,000 and $25,000), which are subject to change from time to time. Borrower loans may be repaid at any time by borrowers without prepayment penalty. A borrower loan will be made to an applicant only if the applicant’s listing has received bids equal to or exceeding the minimum amount required for the listing to fund.

In addition to the applicant’s requested loan amount, listings include:

the interest rate, annual percentage rate and monthly payment amount on the requested loan;

the servicing fee lenders must pay;

the lender yield percentage (interest rate on the loan, net of the servicing fee);

the Prosper Rating and estimated loss rate;

the Prosper Score and credit score range;

the minimum amount required for the loan to fund and whether the applicant has opted for partial funding;

the number of accounts on which the applicant is currently late on a payment, including unpaid derogatory accounts;

the total past-due amount the applicant owes on all delinquent and derogatory accounts;

the number of 90+ days past due delinquencies on the applicant’s credit report;

the number of public records (e.g., bankruptcies, liens, and judgments) on the applicant’s credit report over the last 12 months, and over the last 10 years;

the number of inquiries made by creditors to the applicant’s credit report in the last six months;

the month and year the applicant’s oldest recorded credit line (e.g., revolving, installment, or mortgage credit) was opened;

the total number of credit lines appearing on the applicant’s credit report, along with the number that are open and current;

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the total balance on all of the applicant’s open revolving credit lines;

the applicant’s bankcard utilization ratio, expressed as a percentage, reflecting the ratio of the total balance used, to the aggregate credit limit on, all of the applicant’s open bankcards;

whether the applicant owns a home;

DTI percentage;

the applicant’s self-reported income range, occupation, employment status, and intended use of funds;

the amounts and dates of all lender member bids;

the applicant’s Prosper friends who have bid on the listing, together with any narrative recommendation from a bidding Prosper friend;

the applicant’s group affiliations, if any; and

if the applicant previously obtained one or more loans through the platform, a description of such loan activity, including the number and aggregate principal borrowed on such loans, the current outstanding principal balance of any existing loan, the payment history on such loans, and the applicant’s credit score ranges as of the four most recent dates credit reports were obtained on the applicant in connection with the applicant’s listings, with an arrow indicator denoting whether the applicant’s credit score has improved, declined or remained unchanged since the applicant’s most recent Prosper loan.

Part of an applicant’s credit profile displayed in listings is a DTI ratio. DTI is one measure of the applicant’s ability to take on additional debt. This number takes into consideration how much debt the applicant has or will have, including the requested loan amount. DTI is expressed as a percentage and is calculated by dividing the applicant’s monthly debt payments, including the debt resulting from the borrower loan being requested, by the applicant’s monthly income. Such debt amounts are taken from the applicant’s credit report without verification and exclude monthly housing payments, and the applicant’s income is self-reported and may not be verified by Prosper Funding or PMI.

Listings may include the applicant’s narrative description of why the loan is being requested, and of the applicant’s financial situation.

For PMI Borrower Loans funded between July 13, 2009 and June 30, 2012, borrowers identified their intended use of loan proceeds by unit distribution as follows:

debt consolidation (approximately 46%);

business use, such as financing their home-based or small businesses (approximately 10%);

home improvement (approximately 11%);

financing the purchase of an automobile (approximately 5%); and

other (approximately 28%).

_________________________

Applicants typically state the use of funds in a short sentence or clause, such as “Consolidate my credit card debt and be rid of it.” Please note that historical data regarding PMI Borrower Loans may not be indicative of the future characteristics of Prosper Funding’s borrower loans. See “Risk Factors—Risks Related to Prosper Funding and PMI, the Platform and Prosper Funding’s Ability to Service the Notes” for more information.

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Loan listings and other borrower information available on the platform or in the sales and listing reports are statements made in connection with the purchase and sale of securities, and are therefore subject to Rule 10b-5 of the Exchange Act as well as the antifraud provisions of the Securities Act. In general, Section 10b-5 and the antifraud provisions of the Securities Act provide the purchaser of securities with a right to bring a claim against the issuer for damages arising from any untrue statement of material fact or failure to state a material fact necessary to make any statements made by the issuer not misleading. In this prospectus, Prosper Funding and PMI advise you of the limitations on the reliability of the information provided by applicants with respect to loan listings. Accordingly, a court could determine that Prosper Funding and PMI have advised you of all material facts regarding the information supplied by applicants and your recourse in the event this information is false or misleading may be extremely limited under the securities laws because you have been so advised. Alternatively, the SEC or a court could determine that Prosper Funding and PMI have not advised you of all of the material facts regarding an investment in the Securities, which could give you the right to rescind your investment and obtain damages, and could subject Prosper Funding and PMI to civil fines or criminal penalties in addition to any such rescission rights or damages.

How to Bid to Purchase Notes

A bid on a listing is a lender member’s binding commitment to purchase a Note in the principal amount of the lender member’s bid, should the listing receive bids equaling or exceeding the amount required for the listing to fund. Lender members bid the amount they are willing to commit to purchase a Note dependent for payment on payments Prosper Funding receives on the borrower loan described in the listing.

The bidding period for a listing begins when the listing is posted on the platform and ends either 14 days after posting or on the first date on which the listing has received bids totaling the loan amount requested, whichever is earlier. Lender members cannot place bids on a listing once its bidding period has ended. If the applicant opts for partial funding, the bidding period still will not end prior to the end of the 14 day listing period unless the listing has received bids totaling the full amount of the loan requested.

If the listing does not receive bids equal to or exceeding the minimum amount required for the loan to fund by the end of the bidding period, the listing will terminate and will not be funded. Applicants whose listings expire due to an insufficient amount of bids may post a new listing on the platform, although Prosper Funding has the right under the borrower registration agreement to limit the number of listings a borrower member may post on the platform.

In order to bid on a listing, a lender member must have funds on deposit in his lender member account in at least the amount of the bid. Once bids are placed, they are irrevocable. Lender members may not cancel their bids or withdraw the amount of their bids from their accounts unless the bidding period expires without the listing having received bids in the required minimum amount, or unless the listing is withdrawn or cancelled. See “About the Platform—Structure of Lender Member Accounts and Treatment of Lender Member Balances” for more information.

Currently, the minimum amount a lender member may bid is $25, and the maximum amount a lender member may bid is the amount of the requested borrower loan. The maximum aggregate amount a single lender member may bid on the platform is currently $5,000,000 for individuals and $50,000,000 for institutions. Prosper Funding may change the minimum bid amount or the maximum aggregate bid amounts from time to time. Depending on the amount of the winning bids at the end of the bidding period, there may be a winning bidder on a listing with a winning bid of less than $25. But there cannot be more than one partial winning bid on a listing.

A listing that gets funded typically receives bids from many different lender members. For example, from July 2009 through June 30, 2012, the average aggregate size of a PMI Borrower Loan was approximately $6,408 and the average bid was approximately $65. Please note that historical data regarding PMI Borrower Loans may not be indicative of the future characteristics of Prosper Funding’s borrower loans. See “Risk Factors—Risks Related to Prosper Funding and PMI, the Platform and Prosper Funding’s Ability to Service the Notes” for more information.

Lender members may browse online through available listings displayed on the platform by desired borrower loan amount, yield percentage, Prosper Rating, estimated loss rate, debt-to-income ratio, group or other applicant characteristics. Alternatively, lender members can use Quick Invest, a loan search tool, to identify loan listings that meet their investment criteria. A lender member can bid on as many listings as the lender member desires, subject to the aggregate bidding limit. A lender member can diversify her risk of default if she elects to do so. It is solely up to the individual lender members to select their bidding method and the credit characteristics that are acceptable to the lender member and to determine a diversification strategy.

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Quick Invest

Quick Invest is a loan search tool that allows lender members to identify listings that meet their investment criteria. A lender member using Quick Invest is asked to indicate (i) the Prosper Rating or Ratings she wishes to use as search criteria, (ii) the total amount she wishes to invest and (iii) the amount she wishes to invest per Note. If she wishes to search for Notes using criteria other than, or in addition to, Prosper Rating, she can use one or more of several dozen additional search criteria, such as loan amount, debt-to-income ratio and credit score. The only criteria a lender member cannot specify in Quick Invest are the listing description and the monthly payment amount.

Quick Invest then compiles a basket of Notes for the lender member’s consideration that meet her search criteria. If the pool of Notes that meet her criteria exceeds the total amount she wishes to invest, Quick Invest selects Notes from the pool based on how far the listings corresponding to the Notes have progressed through the loan verification process, i.e., Notes from the pool that correspond to listings for which the loan verification process has been completed will be selected first. If the pool of Notes that meet the lender member’s criteria and for which the loan verification process has been completed still exceeds the amount she wishes to invest, Quick Invest selects Notes from that pool based on the principle of first in, first out, i.e., the Notes from the pool with the corresponding listings that were posted on the platform earliest will be selected first. If the pool of Notes that meet the lender member’s specified criteria exceeds the amount she wishes to invest, but the subset of that pool for which the loan verification process has been completed does not equal the amount she wishes to invest, Quick Invest selects all of the Notes that correspond to listings for which the loan verification has been completed and makes up the difference by selecting Notes from the remaining pool on a first in, first out basis. To the extent available Notes that meet the lender member’s criteria are insufficient to fill her order, the lender member is advised of this shortfall and given an opportunity either to reduce the size of her order or modify her search criteria to make her search more expansive.

If the lender member’s search criteria included multiple Prosper Ratings, Quick Invest divides her basket into equal portions, one portion representing each Prosper Rating selected, and then attempts to fill each portion in the manner just described. To the extent there are insufficient Notes available with a particular Prosper Rating to fill that portion of the lender member’s basket, Quick Invest attempts to make up the deficit by including additional Notes with the other Prosper Ratings selected in equal proportions. To the extent available Notes with these other Prosper Ratings are still insufficient to fill the lender member’s order, the lender member is advised of this shortfall and given an opportunity either to reduce the size of her order or to modify her search criteria to make her search more expansive.

For example, if a lender member using Quick Invest indicated that she wished to invest a total of $600 in Notes with a Prosper Rating of B, C or D, Quick Invest would first attempt to fill her order with equal portions of B, C and D Notes ($200 – B; $200 – C; $200 – D). If there were only $100 of D Notes available, the search tool would attempt to increase the allocation of B and C Notes from $200 to $250 ($250 – B; $250 – C; $100 – D). If there were $250 of B Notes available but only $200 of C Notes available, the search tool would then attempt to make up the remaining gap by increasing the allocation of B Notes from $250 to $300 ($300 – B; $200 – C; $100 – D). But if there were only $275 worth of B Notes available, the lender member would be given the choice of expanding her search criteria or reducing the total size of her order from $600 to $575. If she elected to reduce the size of her order, her final order would consist of $575 of Notes: $275 of B Notes, $200 of C Notes and $100 of D Notes.

The Auto Quick Invest feature allows lender members (i) to have Quick Invest searches run on their designated criteria automatically each time new listings are posted on the platform and (ii) to have bids placed automatically on any Notes identified by each such search. As with a lender making manual bids, a lender member using Quick Invest is not permitted to place a bid unless the funds in her account are sufficient to cover the bid, and funds will only be debited from her account if and when her bid is successful.

Since it was first implemented in July 2011, the Quick Invest tool has experienced errors that affected 5,793 Notes out of the 750,021 Notes purchased through the Quick Invest tool since its inception. Of the affected lenders and Notes, 596 lenders and 1,971 Notes were affected by the erroneous selection by Quick Invest of all possible search criteria; 28 lenders and 2,517 Notes were affected by the erroneous use of inactive searches to purchase Notes; 23 lenders and 96 Notes were affected by an error that resulted in a search identifying every listing’s Prosper Score as a 10 (the best rating), regardless of the actual Prosper Score; and 160 lenders and 1,209 Notes were affected by an error that resulted in lenders who had multiple searches with overlapping criteria bidding on the same listing more than once even though the lender had also selected an option that was supposed to preclude them from investing in the same listing more than once.

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Setting Interest Rates

PMI has an interest rate committee, consisting of its Chief Executive Officer, Chief Operating Officer, Chief Risk Officer, and General Counsel, which meets regularly to set interest rates for all borrower loans. These rates are set forth in a rate table, which is posted at www.prosper.com. The table dictates the interest rate for all borrower loans, based on Prosper Rating, as well as additional factors, such as loan terms, group affiliations, competitive conditions and the general economic environment. The yield percentage on each series of Notes is equal to the interest rate on the related borrower loan, minus a servicing fee, currently set at 1% per annum of the outstanding principal balance of the corresponding borrower loan prior to applying the current payment. Prosper Funding may increase the servicing fee to no more than 3% per annum if its servicing costs increase or to reflect changes to the market rate for servicing similar assets. Any change to the servicing fee will only apply to Notes offered and sold after the date of the change.

The interest rate committee meets on at least a monthly basis, but may meet more frequently as changes in market conditions and the general economic environment dictate. At each meeting, the committee reviews the interest rate table and makes adjustments to it the extent the committee deems necessary. The factors besides Prosper Rating that the committee takes into consideration in updating the table, as well as the weight the committee accords each such factor, may change from time to time.

The interest rate table currently in effect is set forth below. In addition, the interest rate for each loan listing, as well as the yield percentage for the corresponding Notes, is included in the listing report filed for that listing. This information is also included in the listing itself when it is posted on www.prosper.com. In addition, the current interest rate table is posted on www.prosper.com.

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Prosper Rating	Term (years)	Number Prior Prosper Loans	Borrower Rate	Origination Fee	Borrower APR
AA	1	1+	5.65%	0.50%	6.59%
AA	3	1+	6.74%	1.95%	8.07%
AA	5	1+	9.30%	4.95%	11.50%

AA	1	0	5.65%	0.50%	6.59%
AA	3	0	6.74%	1.95%	8.07%
AA	5	0	9.30%	4.95%	11.50%

AA	1	1+	5.65%	0.50%	6.59%
AA	3	1+	6.99%	1.95%	8.33%
AA	5	1+	9.79%	4.95%	12.00%

AA	1	0	5.65%	0.50%	6.59%
AA	3	0	6.99%	1.95%	8.33%
AA	5	0	9.79%	4.95%	12.00%

AA	1	1+	5.65%	0.50%	6.59%
AA	3	1+	7.24%	1.95%	8.58%
AA	5	1+	10.28%	4.95%	12.50%

AA	1	0	5.65%	0.50%	6.59%
AA	3	0	7.24%	1.95%	8.58%
AA	5	0	10.28%	4.95%	12.50%

AA	1	1+	5.86%	0.50%	6.80%
AA	3	1+	7.49%	1.95%	8.83%
AA	5	1+	10.71%	4.95%	12.94%

AA	1	0	5.86%	0.50%	6.80%
AA	3	0	7.49%	1.95%	8.83%
AA	5	0	10.71%	4.95%	12.94%

AA	1	1+	6.15%	0.50%	7.09%
AA	3	1+	7.89%	1.95%	9.23%
AA	5	1+	11.20%	4.95%	13.44%

AA	1	0	6.15%	0.50%	7.09%
AA	3	0	7.89%	1.95%	9.23%
AA	5	0	11.20%	4.95%	13.44%

AA	1	1+	6.43%	0.50%	7.37%
AA	3	1+	8.14%	1.95%	9.48%
AA	5	1+	11.72%	4.95%	13.97%

AA	1	0	6.43%	0.50%	7.37%
AA	3	0	8.14%	1.95%	9.48%
AA	5	0	11.72%	4.95%	13.97%

AA	1	1+	6.75%	0.50%	7.69%
AA	3	1+	8.39%	1.95%	9.74%
AA	5	1+	12.08%	4.95%	14.34%

AA	1	0	6.75%	0.50%	7.69%
AA	3	0	8.39%	1.95%	9.74%
AA	5	0	12.08%	4.95%	14.34%

AA	1	1+	7.04%	0.50%	7.98%
AA	3	1+	8.64%	1.95%	9.99%
AA	5	1+	12.53%	4.95%	14.80%

AA	1	0	7.04%	0.50%	7.98%
AA	3	0	8.64%	1.95%	9.99%
AA	5	0	12.53%	4.95%	14.80%

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Prosper Rating	Term (years)	Number Prior Prosper Loans	Borrower Rate	Origination Fee	Borrower APR
A	1	1+	7.35%	1.95%	11.07%
A	3	1+	9.24%	3.95%	12.02%
A	5	1+	13.12%	4.95%	15.40%

A	1	0	7.35%	1.95%	11.07%
A	3	0	9.24%	3.95%	12.02%
A	5	0	13.12%	4.95%	15.40%

A	1	1+	7.69%	1.95%	11.41%
A	3	1+	9.74%	3.95%	12.53%
A	5	1+	13.64%	4.95%	15.94%

A	1	0	7.69%	1.95%	11.41%
A	3	0	9.74%	3.95%	12.53%
A	5	0	13.64%	4.95%	15.94%

A	1	1+	8.01%	1.95%	11.73%
A	3	1+	10.34%	3.95%	13.14%
A	5	1+	14.27%	4.95%	16.58%

A	1	0	8.01%	1.95%	11.73%
A	3	0	10.34%	3.95%	13.14%
A	5	0	14.27%	4.95%	16.58%

A	1	1+	8.39%	1.95%	12.11%
A	3	1+	10.89%	3.95%	13.70%
A	5	1+	14.86%	4.95%	17.18%

A	1	0	8.39%	1.95%	12.11%
A	3	0	10.89%	3.95%	13.70%
A	5	0	14.86%	4.95%	17.18%

A	1	1+	8.73%	1.95%	12.46%
A	3	1+	11.49%	3.95%	14.31%
A	5	1+	15.51%	4.95%	17.85%

A	1	0	8.73%	1.95%	12.46%
A	3	0	11.49%	3.95%	14.31%
A	5	0	15.51%	4.95%	17.85%

A	1	1+	9.05%	1.95%	12.78%
A	3	1+	11.99%	3.95%	14.82%
A	5	1+	16.19%	4.95%	18.54%

A	1	0	9.05%	1.95%	12.78%
A	3	0	11.99%	3.95%	14.82%
A	5	0	16.19%	4.95%	18.54%

A	1	1+	9.47%	1.95%	13.20%
A	3	1+	12.49%	3.95%	15.32%
A	5	1+	16.74%	4.95%	19.11%

A	1	0	9.47%	1.95%	13.20%
A	3	0	12.49%	3.95%	15.32%
A	5	0	16.74%	4.95%	19.11%

A	1	1+	9.81%	1.95%	13.55%
A	3	1+	12.99%	3.95%	15.83%
A	5	1+	17.28%	4.95%	19.66%

A	1	0	9.81%	1.95%	13.55%
A	3	0	12.99%	3.95%	15.83%
A	5	0	17.28%	4.95%	19.66%

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Prosper Rating	Term (years)	Number Prior Prosper Loans	Borrower Rate	Origination Fee	Borrower APR
B	1	1+	10.33%	2.95%	16.03%
B	3	1+	13.59%	4.95%	17.19%
B	5	1+	17.94%	4.95%	20.34%

B	1	0	10.33%	2.95%	16.03%
B	3	0	13.59%	4.95%	17.19%
B	5	0	17.94%	4.95%	20.34%

B	1	1+	10.72%	2.95%	16.43%
B	3	1+	14.14%	4.95%	17.75%
B	5	1+	18.52%	4.95%	20.93%

B	1	0	10.72%	2.95%	16.43%
B	3	0	14.14%	4.95%	17.75%
B	5	0	18.52%	4.95%	20.93%

B	1	1+	11.09%	2.95%	16.80%
B	3	1+	14.59%	4.95%	18.21%
B	5	1+	18.97%	4.95%	21.39%

B	1	0	11.09%	2.95%	16.80%
B	3	0	14.59%	4.95%	18.21%
B	5	0	18.97%	4.95%	21.39%

B	1	1+	11.47%	2.95%	17.19%
B	3	1+	15.09%	4.95%	18.72%
B	5	1+	19.47%	4.95%	21.90%

B	1	0	11.47%	2.95%	17.19%
B	3	0	15.09%	4.95%	18.72%
B	5	0	19.47%	4.95%	21.90%

B	1	1+	11.77%	2.95%	17.49%
B	3	1+	15.59%	4.95%	19.24%
B	5	1+	19.96%	4.95%	22.41%

B	1	0	11.77%	2.95%	17.49%
B	3	0	15.59%	4.95%	19.24%
B	5	0	19.96%	4.95%	22.41%

B	1	1+	12.15%	2.95%	17.88%
B	3	1+	15.99%	4.95%	19.64%
B	5	1+	20.39%	4.95%	22.85%

B	1	0	12.15%	2.95%	17.88%
B	3	0	15.99%	4.95%	19.64%
B	5	0	20.39%	4.95%	22.85%

B	1	1+	12.46%	2.95%	18.19%
B	3	1+	16.39%	4.95%	20.05%
B	5	1+	20.82%	4.95%	23.29%

B	1	0	12.46%	2.95%	18.19%
B	3	0	16.39%	4.95%	20.05%
B	5	0	20.82%	4.95%	23.29%

B	1	1+	12.79%	2.95%	18.53%
B	3	1+	16.79%	4.95%	20.46%
B	5	1+	21.24%	4.95%	23.72%

B	1	0	12.79%	2.95%	18.53%
B	3	0	16.79%	4.95%	20.46%
B	5	0	21.24%	4.95%	23.72%

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Prosper Rating	Term (years)	Number Prior Prosper Loans	Borrower Rate	Origination Fee	Borrower APR
C	1	1+	13.18%	3.95%	20.93%
C	3	1+	17.34%	4.95%	21.02%
C	5	1+	21.81%	4.95%	24.30%

C	1	0	13.18%	3.95%	20.93%
C	3	0	17.34%	4.95%	21.02%
C	5	0	21.81%	4.95%	24.30%

C	1	1+	13.46%	3.95%	21.21%
C	3	1+	17.74%	4.95%	21.43%
C	5	1+	22.18%	4.95%	24.68%

C	1	0	13.46%	3.95%	21.21%
C	3	0	17.74%	4.95%	21.43%
C	5	0	22.18%	4.95%	24.68%

C	1	1+	13.79%	3.95%	21.55%
C	3	1+	18.24%	4.95%	21.94%
C	5	1+	22.53%	4.95%	25.04%

C	1	0	13.79%	3.95%	21.55%
C	3	0	18.24%	4.95%	21.94%
C	5	0	22.53%	4.95%	25.04%

C	1	1+	14.11%	3.95%	21.87%
C	3	1+	18.64%	4.95%	22.35%
C	5	1+	22.93%	4.95%	25.45%

C	1	0	14.11%	3.95%	21.87%
C	3	0	18.64%	4.95%	22.35%
C	5	0	22.93%	4.95%	25.45%

C	1	1+	14.38%	3.95%	22.15%
C	3	1+	18.99%	4.95%	22.71%
C	5	1+	23.26%	4.95%	25.79%

C	1	0	14.38%	3.95%	22.15%
C	3	0	18.99%	4.95%	22.71%
C	5	0	23.26%	4.95%	25.79%

C	1	1+	14.68%	3.95%	22.45%
C	3	1+	19.39%	4.95%	23.12%
C	5	1+	23.62%	4.95%	26.16%

C	1	0	14.68%	3.95%	22.45%
C	3	0	19.39%	4.95%	23.12%
C	5	0	23.62%	4.95%	26.16%

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Prosper Rating	Term (years)	Number Prior Prosper Loans	Borrower Rate	Origination Fee	Borrower APR
C	1	1+	14.98%	3.95%	22.76%
C	3	1+	19.79%	4.95%	23.53%
C	5	1+	23.95%	4.95%	26.50%

C	1	0	14.98%	3.95%	22.76%
C	3	0	19.79%	4.95%	23.53%
C	5	0	23.95%	4.95%	26.50%

C	1	1+	15.28%	3.95%	23.07%
C	3	1+	20.19%	4.95%	23.94%
C	5	1+	24.33%	4.95%	26.89%

C	1	0	15.28%	3.95%	23.07%
C	3	0	20.19%	4.95%	23.94%
C	5	0	24.33%	4.95%	26.89%

C	1	1+	15.57%	3.95%	23.36%
C	3	1+	20.49%	4.95%	24.25%
C	5	1+	24.59%	4.95%	27.15%

C	1	0	15.57%	3.95%	23.36%
C	3	0	20.49%	4.95%	24.25%
C	5	0	24.59%	4.95%	27.15%

C	1	1+	15.87%	3.95%	23.67%
C	3	1+	20.99%	4.95%	24.76%
C	5	1+	24.98%	4.95%	27.55%

C	1	0	15.87%	3.95%	23.67%
C	3	0	20.99%	4.95%	24.76%
C	5	0	24.98%	4.95%	27.55%

C	1	1+	16.16%	3.95%	23.96%
C	3	1+	21.24%	4.95%	25.01%
C	5	1+	25.15%	4.95%	27.73%

C	1	0	16.16%	3.95%	23.96%
C	3	0	21.24%	4.95%	25.01%
C	5	0	25.15%	4.95%	27.73%

C	1	1+	16.49%	3.95%	24.30%
C	3	1+	21.59%	4.95%	25.37%
C	5	1+	25.48%	4.95%	28.07%

C	1	0	16.49%	3.95%	24.30%
C	3	0	21.59%	4.95%	25.37%
C	5	0	25.48%	4.95%	28.07%

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Prosper Rating	Term (years)	Number Prior Prosper Loans	Borrower Rate	Origination Fee	Borrower A PR
D	1	1+	16.80%	3.95%	24.61%
D	3	1+	21.99%	4.95%	25.78%
D	5	1+	25.73%	4.95%	28.32%

D	1	0	16.80%	3.95%	24.61%
D	3	0	21.99%	4.95%	25.78%
D	5	0	25.73%	4.95%	28.32%

D	1	1+	17.39%	3.95%	25.21%
D	3	1+	22.59%	4.95%	26.39%
D	5	1+	26.32%	4.95%	28.93%

D	1	0	17.39%	3.95%	25.21%
D	3	0	22.59%	4.95%	26.39%
D	5	0	26.32%	4.95%	28.93%

D	1	1+	18.01%	3.95%	25.85%
D	3	1+	23.24%	4.95%	27.06%
D	5	1+	26.84%	4.95%	29.46%

D	1	0	18.01%	3.95%	25.85%
D	3	0	23.24%	4.95%	27.06%
D	5	0	26.84%	4.95%	29.46%

D	1	1+	18.63%	3.95%	26.48%
D	3	1+	23.89%	4.95%	27.73%
D	5	1+	27.47%	4.95%	30.11%

D	1	0	18.63%	3.95%	26.48%
D	3	0	23.89%	4.95%	27.73%
D	5	0	27.47%	4.95%	30.11%

D	1	1+	19.22%	3.95%	27.08%
D	3	1+	24.49%	4.95%	28.34%
D	5	1+	28.04%	4.95%	30.70%

D	1	0	19.22%	3.95%	27.08%
D	3	0	24.49%	4.95%	28.34%
D	5	0	28.04%	4.95%	30.70%

D	1	1+	19.81%	3.95%	27.68%
D	3	1+	25.24%	4.95%	29.11%
D	5	1+	28.67%	4.95%	31.34%

D	1	0	19.81%	3.95%	27.68%
D	3	0	25.24%	4.95%	29.11%
D	5	0	28.67%	4.95%	31.34%

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Prosper Rating	Term (years)	Number Prior Prosper Loans	Borrower Rate	Origination Fee	Borrower APR
E	1	1+	20.80%	3.95%	28.69%
E	3	1+	26.50%	4.95%	30.40%
E	5	1+	29.95%	4.95%	32.66%

E	1	0	20.80%	3.95%	28.69%
E	3	0	26.50%	4.95%	30.40%
E	5	0	29.95%	4.95%	32.66%

E	1	1+	21.41%	3.95%	29.31%
E	3	1+	27.10%	4.95%	31.01%
E	5	1+	30.57%	4.95%	33.30%

E	1	0	21.41%	3.95%	29.31%
E	3	0	27.10%	4.95%	31.01%
E	5	0	30.57%	4.95%	33.30%

E	1	1+	21.99%	3.95%	29.90%
E	3	1+	27.70%	4.95%	31.63%
E	5	1+	31.19%	4.95%	33.93%

E	1	0	21.99%	3.95%	29.90%
E	3	0	27.70%	4.95%	31.63%
E	5	0	31.19%	4.95%	33.93%

E	1	1+	22.54%	3.95%	30.46%
E	3	1+	28.39%	4.95%	32.33%
E	5	1+	31.85%	4.95%	34.61%

E	1	0	22.54%	3.95%	30.46%
E	3	0	28.39%	4.95%	32.33%
E	5	0	31.85%	4.95%	34.61%

E	1	1+	23.10%	3.95%	31.03%
E	3	1+	29.09%	4.95%	33.05%
E	5	1+	32.58%	4.95%	35.36%

E	1	0	23.10%	3.95%	31.03%
E	3	0	29.09%	4.95%	33.05%
E	5	0	32.58%	4.95%	35.36%

E	1	1+	23.63%	3.95%	31.57%
E	3	1+	29.69%	4.95%	33.67%
E	5	1+	33.04%	4.95%	35.84%

E	1	0	23.63%	3.95%	31.57%
E	3	0	29.69%	4.95%	33.67%
E	5	0	33.04%	4.95%	35.84%

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Prosper Rating	Term (years)	Number Prior Prosper Loans	Borrower Rate	Origination Fee	Borrower APR
HR1	3	1+	30.79%	4.95%	34.79%

HR1	3	0	30.79%	4.95%	34.79%

HR1	3	1+	31.34%	4.95%	35.36%

HR1	3	0	31.34%	4.95%	35.36%

HR1	3	1+	31.77%	4.95%	35.80%

HR1	3	0	31.77%	4.95%	35.80%

HR1	3	1+	31.77%	4.95%	35.80%

HR1	3	0	31.77%	4.95%	35.80%

HR1	3	1+	31.77%	4.95%	35.80%

HR1	3	0	31.77%	4.95%	35.80%

HR1	3	1+	31.77%	4.95%	35.80%

HR1	3	0	31.77%	4.95%	35.80%

Purchase of Notes by Prosper Funding, PMI or Related Parties

From time to time, Prosper Funding or PMI may bid on listings and each may hold any Notes purchased as a result of such bids for its own account. Any bid on a loan by Prosper Funding or PMI will be made public in the same manner in which bids by other bidders on a particular listing are made public. In addition, loans upon which Prosper Funding or PMI bid will be identified to other bidders through the use of a special symbol and a user profile that are intended to make it clear that Prosper Funding or PMI is bidding on a particular listing.

Prosper Funding and PMI will participate in bidding on the listings under the same terms and conditions and through the use of the same information that is made available to other lender members on the platform. In some cases, Prosper Funding’s or PMI’s bidding on a listing may cause it to fund, and in some cases, fund faster, than it would fund in the absence of such bid. The amount that Prosper Funding or PMI may choose to bid on any particular listing may vary significantly and Prosper Funding and PMI each reserve the right to bid up to the entire amount of a listing.

Some of Prosper Funding’s or PMI’s executive officers, directors and 5% shareholders have bid on listings and purchased PMI Notes from time to time in the past, and may purchase Notes in the future. As of June 30, 2012, these individuals had purchased $4,761,343 in PMI Notes or loans. These loans and PMI Notes were obtained on the same terms and conditions as those obtained by other lender members. However, as certain of these executive officers and directors, by virtue of their duties as employees, officers or directors of Prosper Funding and PMI, have access to information not available to the general population of lender members, Prosper Funding and PMI have adopted the following procedures to prevent or detect the improper use of non-public information in bidding activities by any of their respective officers and directors:

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PMI’s corporate policies, distributed to all employees, prohibit an employee’s use of non-public information and any violation of this policy is grounds for immediate termination.

Security features that limit access to data only to that needed to perform particular employee job functions. These limitations are defined by “security group,” which corresponds to both job title and function and the number of PMI’s employees that have access to such non-public information on a “bulk” or “query” basis is extremely limited.

In addition to prevention efforts, Prosper Funding and PMI have developed an audit process that identifies and investigates bidding and funds transfer activities that are classified as “suspicious.”

Structure of Lender Member Accounts and Treatment of Lender Member Balances

Prosper Funding maintains a pooled account at Wells Fargo Bank, N.A. to hold the funds of lender members. This account is titled “Prosper Funding LLC for the benefit of its lender members” and is referred to as the “FBO account.” In order to bid on listings, a lender member must have sufficient funds in the FBO account. A lender member can transfer funds into the FBO account by authorizing an electronic transfer using the Automated Clearing House, or ACH, network from the lender member’s designated and verified bank account to the FBO account. All payments to fund purchases of Notes are made by deposit into the FBO account. Upon request by the lender member, Prosper Funding will transfer lender member funds in the FBO account to the lender member’s designated and verified bank account by ACH transfer, provided such funds are not already committed to the future purchase of Notes.

Prosper Funding divides the FBO account into sub-accounts for each lender member. These sub-accounts allow Prosper Funding to track and report for each lender member the funds the lender member has transferred into and out of the FBO account, the funds the lender member has committed to purchase Notes, and the payments the lender member has received on outstanding Notes. Each lender member’s sub-account is referred to as his or her “lender member account.” Lender members have no direct relationship with Wells Fargo Bank by virtue of having a lender member account or participating on the platform.

The FBO account is FDIC-insured on a “pass through” basis to the individual lender members, subject to applicable limits. This means that each lender member’s balance is protected by FDIC insurance up to the aggregate per person limit established by the FDIC. Other funds the lender member has on deposit with the same institution where the FBO account is maintained may count against the FDIC insurance limits for that member. Prosper Funding will always maintain the FBO account with an FDIC member financial institution. Funds of a lender member may stay in the FBO account indefinitely and do not earn interest. Prosper Funding never commingles its assets or any assets of PMI with the assets in the FBO account.

Borrower Loan Funding and Purchases; Sale of Notes

Once the bidding period for a listing ends, if the listing has received bids from lender members equal to or exceeding the minimum amount required to fund, the funding of the corresponding borrower loan and the sale of the Notes to the lender members who bid on the listing will proceed.

Applicants execute an electronic borrower registration agreement at the time they post a listing on the platform. After expiration of the bidding period for the listing and satisfactory completion of the pre-funding verification process, the applicant executes an electronic promissory note in favor of WebBank in an amount equal to the total amount of winning bids. WebBank then electronically endorses the promissory note to Prosper Funding and sells and assigns the promissory note to Prosper Funding without recourse. The promissory note and the borrower registration agreement contain customary agreements and covenants requiring the applicants to repay their loans and describing the process of posting listings and obtaining loans through the platform.

WebBank funds all loans originated on the platform, and PMI disburses the loan proceeds on WebBank’s behalf to the borrower. Each borrower authorizes the loan proceeds to be disbursed by ACH transfer into the borrower’s designated bank account.

Borrowers pay an origination fee out of the proceeds of the loan at the time of funding. As of June 30, 2012, origination fees were as follows:

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Prosper Rating	Origination Fee Percentage (1 year)	Origination Fee Percentage (3 year)	Origination Fee Percentage (5 year)
AA	0.50%	1.95%	4.95%
A	1.95%	3.95%	4.95%
B	2.95%	4.95%	4.95%
C-HR	3.95%	4.95%	4.95%

The origination fees are charged by WebBank, and PMI receives payments from WebBank equal to the origination fees as compensation for its loan origination activities on WebBank’s behalf.

Lender members know only the screen names, and do not know the actual names, of applicants. The actual names and mailing addresses of the applicants are known only to Prosper Funding, PMI and WebBank. Prosper Funding maintains custody of the electronically-executed promissory notes evidencing borrower loans as well as the Securities in electronic form on the platform.

When Prosper Funding issues and sells a Note to a lender member, PMI registers the Note in the name of the lender member on Prosper Funding’s books and records. For each loan originated on the platform, PMI transfers the principal amount of the Notes corresponding to that loan from the FBO account to WebBank. This transfer represents the payment (i) by the lender members who have agreed to purchase the Notes to Prosper Funding of the purchase price for the Notes and (ii) by Prosper Funding to WebBank of the purchase price for the corresponding loan. WebBank is the lender for all borrower loans, which allows the platform to be available on a uniform basis to borrowers throughout the United States.

Borrower members are able to use the loan proceeds for any purpose other than (i) buying, carrying or trading in securities or buying or carrying any part of an investment contract security or (ii) paying for postsecondary educational expenses (i.e., tuition, fees, required equipment or supplies, or room and board) at a college/university/vocational school, as the term “postsecondary educational expenses is defined in Bureau of Consumer Finance Protection Regulation Z, 12 C.F.R. § 1026.46(b)(3), and they warrant and represent that they will not use the proceeds for any such purposes.

Loan Servicing and Collection

Following Prosper Funding’s purchase of borrower loans and sale of Notes corresponding to the borrower loans, it begins servicing the borrower loans and Notes. Prosper Funding expects to enter into an Administration Agreement with PMI, pursuant to which Prosper Funding has engaged PMI to assist it in performing these duties and to perform various other tasks on Prosper Funding’s behalf relating to the corporate administration of Prosper Funding and the operation of the platform. In general, any actions described below that Prosper Funding takes in servicing the borrower loans or Notes may be taken on Prosper Funding’s behalf by PMI acting as its agent. See “Summary of Indenture, Form of Notes and Administration Agreement—Administration Agreement.”

PMI collects payments from borrowers on borrower loans and transfers amounts collected to the lender members who own Notes corresponding to the borrower loan, after deducting servicing fees. On Notes, the payment dates will fall on the sixth business day after the due date for each monthly installment of principal and interest on the corresponding borrower loan, but interest will accrue on the Notes only through the relevant payment date for the related borrower loan.

To the extent Prosper Funding does not receive the anticipated payments on a borrower loan on or before any loan payment date, it will not make any payments on the Notes related to that borrower loan on the corresponding Note payment date, and a holder of a Note will not have any rights against Prosper Funding or the borrower in respect of the Note or the corresponding borrower loan in relation to any delay in collections and Note payments or for shortfalls in accrued Note interest that result then or in relation to the final maturity of the Note. Each holder’s right to receive principal and interest payments and other amounts in respect of that Note is limited in all cases to the holder’s pro rata portion of the amounts Prosper Funding timely receives on the corresponding borrower loan, including without limitation, all payments or prepayments of principal and interest, subject to servicing fees and other charges and other fees retained by Prosper Funding or by a third party, as set forth in the following chart. Prosper Funding’s current collection agencies charge collection fees from 17.0% to 30.0% of the amount recovered up to the “total amount delinquent.” To the extent that Prosper Funding places loans with another collection agency, it will disclose the collection fees percentages on its website.

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Description of Fee Charged by Prosper Funding	Fee Amount	When Fee is Charged	Effect on Lender Member

Prosper Funding Borrower Payment Dependent Notes

Servicing fee	Annualized rate currently set at 1% per annum of outstanding principal balance, but which Prosper Funding may increase in the future to an amount greater than 1% but less than or equal to 3% per annum. Any change to the servicing fee will only apply to Notes offered and sold after the date of the change. The servicing fee percentage is disclosed in all loan listings and is posted in the Help pages section at www.prosper.com.	The servicing fee is payable on all payments received by Prosper Funding on borrower loans, including, without limitation, partial payments.	The servicing fee will reduce the effective yield below the interest rate on the borrower loan. This reduction is reflected in the yield percentage included in each listing.

Non-sufficient funds fee	$15, unless a lesser amount is required by applicable law.	First failed payment for each billing period.	Prosper Funding retains 100% of the non-sufficient funds fees to cover its administrative expenses.

Late payment fee	Equal to greater of 5% of the unpaid installment amount or $15, unless a lesser amount is required by applicable law.	After 15-day grace period, Prosper Funding assesses a late fee. The late payment fee is charged only once per payment period.	Any late payment fees Prosper Funding receives are paid to the lender members, subject to deductions for Collection Charges and Servicing Fees.

Collection Charges	Prosper Funding’s current collection agencies charge collection fees from 17.0% to 30.0% of the amount recovered up to the “total amount delinquent,” plus any legal fees incurred in the event legal action is taken to collect a loan. The collection fees vary depending upon the collection agency used. These fees are posted in the Help pages section of the website.	After a borrower loan becomes more than 30 days past due, the loan may be referred to a collection agency. Collection charges and any related legal fees are only charged if delinquent amounts are collected. Prosper Funding’s servicing fee is also deducted from the net payments it receives as a result of any collection efforts on a delinquent borrower loan.	Lender members will not receive any collection fees a third-party collection agency charges, which fees will be retained by the party charging the fees as additional servicing compensation. The collection fees and any related legal fees will be deducted from any borrower loan payments Prosper Funding receives. These fees will reduce the lender member’s effective yield, and are not reflected in the yield percentage shown on the listing.

Loan modification fees	Prosper Funding will not charge a fee for restructuring a borrower loan.	PMI may work with the borrower to structure a new payment plan in respect of the borrower loan without the consent of any holder of the Notes corresponding to the borrower loan. This generally would only occur in lieu of bankruptcy or a similar proceeding.	Not applicable.

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Prosper Funding’s procedures for collecting borrower loan payments generally involve the automatic debiting of borrower bank accounts by ACH transfer. Such funds are transferred to a master servicing account in Prosper Funding’s name that Prosper Funding maintains with Wells Fargo Bank, N.A. Thereafter, Prosper Funding makes payments on the Notes by transferring the appropriate funds from the master servicing account to the FBO account and allocating amounts received on specific borrower loans to the appropriate lender member accounts. Prosper Funding transfers amounts due to it for servicing from the master servicing account to another operating account of Prosper Funding’s. A lender member may transfer uncommitted funds out of the FBO account by ACH transfer to the lender member’s designated bank account at any time, subject to normal execution times for such transfers (generally 2-3 days), provided such funds are not already committed to the future purchase of Notes.

Prosper Funding will make payments on the Notes upon receiving payments under the corresponding borrower loan, in accordance with the payment schedule for each Note. Each Note will have a payment schedule providing for monthly payments over a term equal to the corresponding borrower loan maturity. The payment date for Notes will fall on the sixth business day after the due date for each monthly installment of principal and interest on the corresponding borrower loan, but interest will accrue on the Notes only through the corresponding payment dates for the related borrower loan. The stated interest rate on each Note will be the lender yield percentage set forth in the loan listing. The yield percentage is the loan interest rate net of the servicing fee.

Prosper Funding discloses borrowers’ payment performance on loans to the relevant lender members on its website and also reports such information to consumer reporting agencies.

Prosper Funding subtracts a servicing fee from every loan payment it receives. The amount of the servicing fee with respect to a particular payment is calculated by (a) multiplying the applicable annual servicing fee rate by a fraction, the numerator of which is equal to the number of days since the borrower’s last payment (or, in the case of the borrower’s first payment, since the date on which the relevant loan was funded) and the denominator of which is 365, and (b) multiplying the product obtained by the outstanding principal balance of the loan prior to applying the current payment. The rate of Prosper Funding’s annual servicing fee is currently set at 1.0% per annum of the outstanding principal balance, but Prosper Funding may increase that in the future to a rate greater than 1% but less than or equal to 3% per annum,. Any change to Prosper Funding’s servicing fee will only apply to Notes offered and sold after the date of the change. Prosper Funding’s servicing fees are posted in the Help pages section at www.prosper.com.

PMI keeps lender members apprised of the delinquency status of borrower loans by identifying delinquent loans on its website as “1 month late,” “2 months late,” “3 months late,” or “current.” Borrower loans that become more than 120 days overdue are charged off and designated as such on the website. Through their online Prosper Funding account, lender members are able to monitor the borrower loans corresponding to their Notes, but cannot participate in or otherwise intervene in the collection process.

Historically, PMI referred PMI Borrower Loans that became more than 30 days past due to a third party collection agency for collection proceedings. As of June 30, 2012, 11,826 PMI Borrower Loans funded between November 2005 and July 12, 2009, or 41% of all PMI Borrower Loans funded during that period, have been referred to a collection agency for collection proceedings, 43% have been greater than 30 days past due at any time and 40% have been greater than 60 days past due at any time. As of June 30, 2012, 2,488 PMI Borrower Loans funded between July 13, 2009 and June 30, 2012, or 8.67% of all PMI Borrower Loans funded during that period, have been referred to a collection agency for collection proceedings, 9% have been greater than 30 days past due at any time and 7% have been greater than 60 days past due at any time.

If a borrower dies while a borrower loan is in repayment, Prosper Funding requires the executor or administrator of the estate to send a death certificate to Prosper Funding. Depending on the size of the estate and the other liabilities thereof, Prosper Funding may not be able to recover the outstanding amount of the loan. If the estate does not include sufficient assets to repay the outstanding borrower loan in full, or allocates its assets to other liabilities, Prosper Funding will treat the unsatisfied portion of that borrower loan as charged off with zero value. In addition, if a borrower dies near the end of the term of a borrower loan, it is unlikely that any further payments will be made on the Notes corresponding to such borrower loan, because the time required for the probate of the estate may extend beyond the final maturity date of the Notes.

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When Prosper Funding receives notice of a borrower bankruptcy filing, it ceases all automatic monthly payments on the borrower loan and defers any other collection activity, as required by law. The status of the borrower loan, which the relevant lender members may view through their online Prosper Funding accounts, switches to “bankruptcy.” Prosper Funding then determines whether it has a basis to object to the inclusion of the debt in any bankruptcy action (e.g., based on the time between loan origination and bankruptcy filing). If the proceeding is a Chapter 7 bankruptcy filing seeking liquidation, Prosper Funding attempts to determine if the proceeding is a “no asset” proceeding, based on instructions it receives from the bankruptcy court. If the proceeding is a “no asset” proceeding, Prosper Funding takes no further action and assumes that no recovery will be made on the borrower loan.

In all other cases, PMI files a proof of claim involving the borrower. The decision to pursue additional relief beyond the proof of claim in any specific matter involving a borrower will be entirely within Prosper Funding’s discretion and will depend upon certain factors including:

if the borrower used the proceeds of the loan in a way other than that which was described in the listing;

if the bankruptcy is a Chapter 13 proceeding, whether the proceeding was filed in good faith and if the proposed plan reflects a “best effort” on the borrower’s behalf; and

Prosper Funding’s view of the costs and benefits to it of any proposed action.

Note Trader Platform

Lender members may not transfer the Notes except through the Note Trader platform operated and maintained by FOLIOfn Investments, Inc., a registered broker-dealer. The Note Trader platform is an internet-based trading platform on which lender members may offer the Notes for sale or bid on and purchase Notes offered for sale by other lender members. Lender members must first establish a brokerage relationship with FOLIOfn Investments, Inc. before using the Note Trader platform. In this section, lender members who have established such brokerage relationships are referred to as “subscribers.” Only transactions involving the sale of previously-issued Notes will be effected through the Note Trader platform; the Note Trader platform will not handle any aspect of transactions involving the initial offer and sale of Notes by Prosper Funding.

Subscribers who sell Notes on the Note Trader platform will be subject to transaction fees charged by FOLIOfn Investments, Inc. The transaction fee is currently equal to one percent of the sale price of the Note sold.

Neither Prosper Funding nor PMI is a registered national securities exchange, securities information processor, clearing agency, broker, dealer or investment adviser. All securities services relating to the Note Trader platform are provided by FOLIOfn Investments, Inc. Neither Prosper Funding, nor PMI nor FOLIOfn Investments, Inc. will make any recommendations with respect to transactions on the Note Trader platform. There is no assurance that lender members will be able to establish a brokerage relationship with FOLIOfn Investments, Inc. Furthermore, Prosper Funding cannot assure subscribers that they will be able to sell Notes they offer for sale through the Note Trader platform at the offered price or any other price, nor can Prosper Funding offer any assurance that the Note Trader platform will continue to be available to subscribers.

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Sale of the Notes

Notes Subject to Sale by Subscribers. All Notes, including Notes for which the corresponding borrower loans have become delinquent, will be eligible for sale on the Note Trader platform. There is no limit on the number of times a Note may be sold on the Note Trader platform, so long as the Note is outstanding.

Lender Members Eligible to Bid on Note Listings. Lender members must first establish a brokerage relationship with FOLIOfn Investments, Inc. before using the Note Trader platform. To open an account, FOLIOfn Investments, Inc. may require lender members to confirm that they satisfy certain minimum financial suitability standards and maximum investment limits, if any, that may be imposed by the state in which the lender member resides. If the lender member does not satisfy these suitability requirements he or she will not be able to participate on the Note Trader platform.

Creation of Note Listings. Subscribers may offer one or more of their Notes for sale on the Note Trader platform by creating and posting a “Note listing.” Subscribers may offer to sell any or all of the Notes they own and may offer to sell more than one Note at the same time. When posting a Note listing, the subscriber will designate a minimum sale price the subscriber is willing to receive for the Note.

Note listings will have a seven-day auction bidding period, but selling subscribers may elect to end the listing early at any time after a winning bid is made. Selling subscribers may also add an “automatic sale” feature to their Note listing, which would end the bidding period on a Note listing immediately after the listing receives an initial bid equal to an automatic sale price set by the selling subscriber. In such instances the Note would be immediately sold to the subscriber who placed the bid.

The selling subscriber may withdraw Note listings without charge at any time prior to expiration of the auction bidding period, before any bids are received. Note listings with at least one bid cannot be withdrawn by the selling subscriber.

Display of Note Listings. Note listings will be displayed for auction on the Note Trader platform, and include the selling subscriber’s screen name, the offered sale price of the Note, the interest rate on the Note, the remaining term of the Note, and the yield to maturity that corresponds to the offered sale price. Note listings will also include the repayment status of the borrower loan corresponding to the Note (i.e., current or delinquent), the payment history on the borrower loan and the next scheduled payment on the Note. In addition, Note listings will include the remaining duration of the Note listing, the number of bids, and whether the Note listing has an automatic sale feature.

Note listings will include a link to the original listing (including the listing title, description, credit data, recommendations and original bidding history) for the borrower loan that corresponds to the Note being offered for sale. Although Note listings will be displayed publicly on the Note Trader platform, the borrower’s payment history and corresponding listings will be viewable only by registered subscribers.

Bidding on Note Listings. Only registered subscribers are eligible to bid for and purchase Notes listed for sale on the Note Trader platform. Subscribers may bid for and purchase one or more Notes from selling subscribers. As with bidding on loan listings, subscribers who bid on Note listings must have funds on deposit in the subscriber’s funding account in at least the aggregate amount of the subscriber’s bids. Subscribers are prohibited from withdrawing amounts from the subscriber’s funding account to the extent any such withdrawal would reduce the balance below the aggregate amount of the subscriber’s pending bids on loan listings and Note listings. Subscribers are not eligible to bid on their own Note listings.

Subscribers bidding on Note listings must bid for the full amount of the Note being sold, and there may be only one winning bidder for a Note offered for sale by a selling subscriber.

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Bids may be made by subscribers until the end of the auction bidding period specified in the Note listing. The selling subscriber may, however, end the auction bidding period early at any time after a winning bid is made. The winning bidder is the subscriber who has bid the highest price as of the end of the auction bidding period (or the automatic sale price with respect to a Note listing with such a feature).

Proxy Bidding. The Note Trader platform employs an automated proxy bidding system that enables bidding subscribers to place a bid higher than the then current minimum bid, and have bids continually applied against a Note listing, up to a specified maximum bid amount. The maximum bid amount is hidden from view until competing bids push the current sale price higher than the bidder’s maximum bid.

Close of Bidding and Sale of Notes. When a Note listing ends with a winning bidder, upon settlement of the sale of the Note to the winning bidder, which will normally occur on the business day following expiration of the Note listing, the final sale price is withdrawn from the winning subscriber’s funding account to pay the selling subscriber. The transaction fee is deducted from the sale price and retained by FOLIOfn Investments, Inc.

Upon the selling subscriber’s receipt of the final net sale proceeds, the Note is sold, transferred and assigned by the selling subscriber to the winning bidder without recourse. All further payments made on the Note following settlement of the sale will be credited to the account of the purchasing subscriber. The purchasing subscriber may retain ownership of the Note for the remainder of its term, or list the Note for sale on the Note Trader platform. The electronic original Note is retained by Prosper Funding, as servicer of the Note, for the remaining term of the Note.

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SUMMARY OF INDENTURE, FORM OF NOTES AND ADMINISTRATION AGREEMENT

Indenture and Form of Notes

The following summary of the indenture and form of Notes does not purport to be complete and is qualified in its entirety by the complete terms and conditions of the indenture and form of Note. Prosper Funding has filed a copy of the indenture and form of Note as an exhibit to the registration statement of which this prospectus forms a part.

General

Borrower Payment Dependent Notes or “Prosper Borrower Notes,” or “Notes” will be issued in series under the indenture entered into between Prosper Funding and Wells Fargo Bank, National Association. Each series of Notes will correspond to one borrower loan. Each series of Notes are dependent for payment on payments ~~we receive~~Prosper Funding receives on ~~one~~such borrower loan.

All Notes will be U.S. dollar denominated, fully amortizing and have a fixed rate of interest. The Notes will have a stated interest rate that is the same as the yield percentage for the corresponding borrower loan and an aggregate stated principal amount equal to the principal amount of the corresponding borrower loan. Notwithstanding the foregoing, ~~we have~~Prosper Funding has no obligation to make any payments on the Notes unless, and then only to the extent that, ~~we have~~it has received payments on the corresponding borrower loan. The Notes will also be subject to full or partial prepayment without penalty.

The indenture will not limit the aggregate principal amount of Notes that Prosper Funding can issue under the indenture, but each series of Notes will be effectively limited to the maximum allowable principal amount (currently ~~$25,000, but which may increase to $35,000 in the future)~~$25,000) of a borrower loan. If in the future ~~we change~~Prosper Funding changes the maximum allowable borrower loan amount, then the maximum aggregate principal amount of Notes per series would also increase. WeProsper Funding will use all proceeds ~~we receive~~it receives from sales of the Notes to purchase the corresponding borrower loans from WebBank.

Maturity Dates

~~Prosper Borrower~~PMI Notes currently have a term of one, three or five years, but Prosper Funding may in the future extend the range of available maturity dates to between three months and seven years. If there are amounts owing to Prosper Funding in respect of the corresponding borrower loan at the initial maturity of a Note, the term of the Note will be automatically extended by one year, which ~~we refer~~this prospectus refers to as the “final maturity,” to allow the Note holder to receive any payments that ~~we receive~~Prosper Funding receives during such period on the corresponding borrower loan after the maturity of the corresponding borrower loan. However, because we may, in our sole discretion and subject to our servicing standard, amend, modify, sell to a third-party debt purchaser or charge off the borrower loan at any time after the 31st day of its delinquency, and we generally will charge off a loan after it becomes more than 120 days past due, such borrower loan may never reach the final maturity date. Following the final maturity of a Note, the holder of that Note will have no right to receive any further payments from Prosper Funding even if the borrower under the corresponding borrower loan, or a bankruptcy trustee or estate of such borrower, subsequently remits payments to Prosper Funding or the servicer of the borrower loan.

~~Ranking~~Ranking; Security Interest

The Notes will be ~~unsecured~~ special, limited obligations of ~~Prosper.~~ Prosper Funding. The Notes are not directly secured by any collateral and are not guaranteed or insured by PMI, any governmental agency or instrumentality or any third party. Prosper Funding will be obligated to make payments on each Note in a series only if and to the extent that ~~Prosper receives~~the borrower makes principal or interest payments ~~from the borrower~~ on the corresponding borrower loan purchased by Prosper Funding with the proceeds of that series, and such borrower loan payments will be shared ratably among all owners of Notes of the series, subject to ~~Prosper’s~~Prosper Funding’s servicing ~~fees.~~fees and the fees and charges retained by Prosper Funding or paid to third parties as described above. In the event of a bankruptcy or similar proceeding of Prosper Funding, the relative rights of the holder of a Note as compared to the holders of other ~~unsecured~~ indebtedness of Prosper Funding with respect to payment from the proceeds of the borrower loan corresponding to that Note or other assets of Prosper Funding is uncertain.

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To limit the ~~risk~~risks to holder of ~~Prosper’s~~Notes of its insolvency, Prosper Funding has granted the trustee under the indenture for the Notes, referred to as the “indenture trustee,” for the benefit of the Note holders, a security interest in ~~Prosper’s right to payment under,~~all of the borrower loans and all payments and proceeds received by Prosper Funding on the ~~corresponding~~ borrower loans and in the bank account in which the borrower loan payments are deposited. Prosper Funding will perfect the security interest of the indenture trustee in such collateral by maintaining this bank account with the indenture trustee (thus providing the indenture trustee with “control” of the account under applicable law governing the perfection of security interests) and by filing a Uniform Commercial Code financing statement with the Delaware Secretary of State. The indenture trustee may exercise its legal rights to the collateral only if an event of default has occurred under the indenture.

~~Table~~ Any borrower loans that PMI, performing loan servicing as Prosper Funding’s agent pursuant to the Administration Agreement, sells or otherwise transfers on Prosper Funding’s behalf for the purpose of ~~Contents~~

realizing the value thereof (though not the proceeds of any such sale or transfer) will automatically be released from the security interest as will any borrower loan that remains unpaid on its final maturity date.

The indenture does not contain any provisions that limit ~~Prosper’s~~Prosper Funding’s ability to incur indebtedness in addition to the ~~Notes.~~Notes; however, Prosper Funding’s organizational documents do impose such limitations. See “Information About Prosper Funding LLC-Overview.”

Payments ~~and Paying Agents~~

Subject to the limitations described below under “Limitations on Payments,” weProsper Funding will make payments of principal and interest on the Notes upon receiving borrower loan payments in respect of the corresponding borrower loan, in accordance with the payment schedule for each Note. Each Note will have a payment schedule providing for monthly payments over a term equal to the maturity of the corresponding borrower loan. The payment dates will fall on the sixth business day after the due date for each monthly installment of principal and interest on the corresponding borrower loan, but interest on the Notes will accrue only through the corresponding payment dates for the related borrower loan.

~~We request~~Prosper Funding requests an ACH payment from a borrower on the business day prior to the payment due date, and normally ~~receive~~receives payment the following business day. A borrower’s loan payment is initially deposited in ~~our~~Prosper Funding’s servicing account upon receipt and is not distributed to the lender member’s funding account until the sixth business day after the ACH payment was requested and the short return window for ACH funds has expired. Lender members can review their account statements online and see if they received payment on the Notes on ~~the~~such following sixth business day. Upon maturity of the Note, the same process occurs. Although payment to lender members under the Notes is made six business days after the applicable loan payment and loan maturity date, Prosper Funding treats the payment date and maturity date of the Note to be the same as the dates set forth in the corresponding borrower loan.

The stated interest rate on each Note will be the lender yield percentage set forth in the loan listing. The lender yield percentage ~~that lender members bid~~ is equal to the interest rate on the corresponding borrower loan net of the servicing ~~fee applicable to the loan described in the listing.~~fee. The stated interest rate on each Note will not be the same as the interest rate on the corresponding borrower loan because it takes into account the servicing fee. Interest will be computed on the Notes in the same manner as the interest on the corresponding borrower loans is computed.

“Business day” means each Monday, Tuesday, Wednesday, Thursday and Friday that is (1) not a day on which the Automated Clearing House system operated by the U.S. Federal Reserve Bank (the “ACH System”) is closed and (2) not a day on which banking institutions in San Francisco, California or New York, New York are authorized or obligated to close.

Limitations on Payments

Subject to the servicing fees described below and Prosper Funding’s retention or payment to third parties of the other fees and charges described below, any amounts received from borrowers on borrower loans will be forwarded by Prosper Funding to the holder of the Notes corresponding to the borrower loan. Each Note holder’s right to receive principal and interest payments and other amounts in respect of that Note is limited in all cases to the holder’s pro rata portion of the amounts received by Prosper Funding in connection with the corresponding borrower loan, including without limitation, all payments or prepayments of principal and interest, subject to servicing fees charged by ~~Prosper. As~~Prosper Funding and Prosper Funding’s retention or payment to third parties of the other fees and charges described below.

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Prosper Funding retains a servicing fee from every loan payment it receives as compensation for servicing the borrower loans and ~~Notes, Prosper shall be entitled to retain from payments received on~~Notes. The amount of the ~~borrower loans a~~ servicing fee with respect to a particular payment is calculated by (a) multiplying the ~~application of an~~applicable annual servicing fee rate ~~applied~~by a fraction, the numerator of which is equal to the number of days since the borrower’s last payment (or, in the case of the borrower’s first payment, since the date on which the relevant loan was funded) and the denominator of which is 365, and (b) multiplying the product obtained by the outstanding principal balance of the ~~Notes. Prosper’s servicing fee rates are subject~~loan prior to ~~change from time to time, and are posted in~~applying the ~~Fees and Charges~~ ~~section of the~~ current payment. Prosper ~~website. Prosper will service the Notes and the corresponding borrower loans, and~~Funding currently charges lenders a servicing fee ~~in an amount equal to an annualized rate currently set at~~of 1.0% ~~of the outstanding principal balance of the corresponding borrower loan, which Prosper~~per annum, but it may ~~extend~~increase that fee in the future to ~~between~~a rate greater than 1% but less than or equal to 3% per annum. Any change to the servicing fee will only apply to Notes offered and ~~3%.~~sold after the date of the change. Prosper Funding’s servicing fees are posted in the Help pages section at www.prosper.com. Servicing fees will reduce the effective yield on borrower loans below the borrower interest rate. The servicing fee rate will be disclosed in all ~~borrower~~loan listings. The servicing fee is payable on all payments received on borrower loans corresponding to the Notes, including without limitation partial payments, ~~made toward a borrower’s loan.~~prepayments and late payment fees paid by the related borrower. Prosper Funding will not pay Note holders any non-sufficient funds fees orit receives, but will retain such fees as additional servicing compensation. In addition, any collection fees ~~it or~~that a ~~third-party charge, and such fees~~third party charges in respect of any borrower loan will be retained by the party ~~receiving~~earning such fees and will reduce the ~~fee as additional servicing compensation.~~amount of collections available for payment on the Notes. Prosper Funding will pay Note holders any late fees it receives on corresponding borrower loans. ~~Any prepayments received on borrower loans will be paid ratably to the corresponding Note holders.~~

The “non-sufficient funds fee” is a fee charged by Prosper Funding or a third-party servicer or collection agency when a payment request is denied or a check is returned unpaid for any reason, including but not limited to, insufficient funds in the borrower member’s bank account or the closing of that bank account. The non-sufficient funds fee currently charged by Prosper Funding on borrower loans is $15 or such lesser amount permitted by law. To the extent ~~we do~~it does not receive the anticipated payments on a borrower loan, weProsper Funding will not make any payments on the Notes related to that borrower loan, and a holder of a Note will not have any rights against Prosper Funding or the borrower member in respect of the Note or the corresponding borrower loan.

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Prepayments

To the extent that a borrower member prepays a borrower loan, such prepayment amount will be a borrower loan payment, and holders of Notes corresponding to that borrower loan will be entitled to receive their pro rata shares of the prepayment, net of applicable servicing ~~fees.~~fees and Prosper Funding’s retention or payment to third parties of the other fees and charges described above.

Mandatory Redemption

Upon the occurrence of a confirmed identity fraud incident with respect to a borrower loan, Prosper Funding will redeem all of the Notes of the series corresponding to such borrower loan for 100% of the remaining outstanding principal amount of such ~~Notes.~~Notes if such Notes are at least 120 days past-due (subject to Prosper Funding’s right to repurchase, in its sole discretion, such Notes at an earlier date). An “identity fraud incident” means that the corresponding borrower loan has been obtained as a result of verifiable identity theft on the part of the purported borrower member. WeProsper Funding may, in ~~our~~its discretion, require proof of the identity theft, such as a copy of the police report filed by the person whose identity was wrongfully used to obtain the borrower loan.

Servicing Covenant

~~We are~~Prosper Funding is obligated to use commercially reasonable efforts to service and collect borrower loans, in good faith, accurately and in accordance with industry standards customary for servicing loans such as the borrower loans. If ~~we refer~~Prosper Funding refers a delinquent borrower loan to a collection agency within five (5) business days after it becomes thirty days past-due, that referral shall be deemed to constitute commercially reasonable servicing and collection efforts. WeProsper Funding may, in ~~our~~its sole discretion and subject to ~~our~~its servicing standard, refer a borrower loan to a collection agency, elect to initiate legal action to collect a borrower loan or sell a borrower loan to a third party debt buyer at any time. WeProsper Funding may also work with the borrower member to structure a new payment plan for the borrower loan without the consent of any of the corresponding Note holders. ~~We are~~Prosper Funding is obligated to use commercially reasonable efforts to maintain backup servicing arrangements for the borrower loans. It currently has a backup servicing arrangement with CSC Logic, Inc., a subsidiary of Computer Sciences Corporation, one of the world leaders in the information technology and professional services industry. CSC Logic, Inc. has been in the backup servicing market for more than twenty years and it services a variety of asset types, including unsecured consumer loans, that cover the full credit spectrum. It is unlikely that CSC Logic, Inc. would be able to perform functions other than servicing the existing borrower loans and Notes. For instance, CSC Logic likely would not be able to facilitate the creation of new loans through the platform or manage Prosper Funding’s marketing efforts. Prosper Funding believes that it could find one or more other parties who could perform these and any other functions necessary to fully operate the platform in the absence of PMI. However, it could take some time to find another such party or parties who could perform the necessary functions and it could take such party or parties additional time to become comfortable with the operation of the platform. Any such delay should not affect existing Note holders, because the back-up servicer should be able to continue servicing existing loans and Notes, but it could delay Prosper Funding’s ability to facilitate the creation of new loans and issue new Notes through the platform, which could adversely affect Prosper Funding’s finances and customer relationships.

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In servicing borrower loans, weProsper Funding may, in ~~our~~its discretion, utilize affiliated or unaffiliated third party loan servicers, collection agencies or other agents or contractors. ~~We are obligated to use commercially reasonable efforts to service and collect the borrower loans in accordance with prudent industry standards for loans of the same general type and character.~~ Any modification or restructuring of borrower payment terms that Prosper Funding approves must be done in compliance with ~~this~~the servicing standard described above, which means that the servicer must make a reasonable and prudent determination that any such modification is not materially adverse to the interests of the Note holders. The modifications contemplated by this servicing provision would be made in situations, common to loan servicing industry practices, where a reasonable forbearance or extension of time for payment to be received would prevent a borrower from defaulting entirely on the loan or filing for bankruptcy. From the Note holder’s perspective, such modifications would only be employed in situations where a greater loss would be avoided.

In the event the terms of any borrower loan are modified, wePMI will notify the corresponding Note holders via email of the material terms of the borrower loan modifications and the effect such changes will have on their Notes, including changes to payments they will receive under the Notes.

Notification Requirements

~~We keep~~Prosper Funding keeps lender members apprised of the delinquency status of borrower loans by identifying delinquent loans on ~~our~~its website as “1 month late,” “2 months late,” “3 months late,” or “current.” Borrower loans that become more than 120 days overdue are charged off and designated as such on ~~our~~Prosper Funding’s website. Lender members are able to monitor the borrower loans corresponding to their Notes, but cannot participate in or otherwise intervene in the collection process.

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If a default with respect to the Notes of any series occurs and is continuing, and if it is known to the indenture trustee, the trustee is required to notify each holder of the Notes within 90 days after it occurs. The trustee may withhold the notice if and so long as a committee of its trust officers in good faith determines that withholding the notice is in the interests of the Note holders, except for defaults caused by ~~Prosper’s~~Prosper Funding’s failure to make principal and interest payments when required.

In addition, if required by Section 313(a) of the Trust Indenture Act of 1939, within 60 days after each May 15, the Trustee shall mail or transmit electronically to each Note holder a brief report dated as of such May 15 that complies with Trust Indenture Act Section 313(a).

Consolidation, Merger, Sale of Assets

The indenture prohibits usProsper Funding from consolidating with or merging into another business entity or conveying, transferring or leasing ~~our~~its properties and assets substantially as an entirety to any business entity, unless:

Prosper Funding is the continuing corporation or limited liability company after such consolidation, merger or sale of assets;

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the surviving or acquiring entity is a U.S. corporation, limited liability company, partnership or trust and it expressly assumes ~~our~~Prosper Funding’s obligations with respect to the outstanding Notes by executing a supplemental indenture;

immediately after giving effect to the transaction, no default shall have occurred or be continuing; and

~~we have~~Prosper Funding has delivered to the trustee an officers’ certificate and an opinion of counsel, each stating that the transaction, and if a supplemental indenture is required in connection with such transaction, such supplemental indenture, complies with the indenture and all conditions precedent relating to such transaction have been complied with.

Denominations, Form and Registration

WeProsper Funding will issue the Notes only in registered form and only in electronic form. This means that each Note will be stored on ~~our~~Prosper Funding’s website. You can view a record of the Notes you own and the form of your Notes online and print copies for your records, by visiting your secure, password-protected webpage in the “My Account” section of ~~our~~Prosper Funding’s website. WeProsper Funding will not issue certificates for the Notes. Lender members will be required to hold their Notes through ~~our~~Prosper Funding’s electronic Note register.

The laws of some states in the United States may require that certain persons take physical delivery in definitive, certificated form, of securities that they own. This may limit or curtail the ability of such persons to purchase Notes. ~~We reserve~~Prosper Funding reserves the right to issue certificated Notes only if ~~we determine~~it determines not to have the Notes held solely in electronic form.

WeProsper Funding and the indenture trustee will treat the lender members in whose names the Notes are registered as the owners thereof for the purpose of receiving payments and for any and all other purposes whatsoever with respect to the Notes.

Restrictions on Transfer

The Notes will not be listed on any securities exchange. All Notes must be held by ~~our~~Prosper Funding’s lender members. The Notes will not be transferable except through the Note Trader platform operated and maintained by FOLIOfn Investments, Inc., a registered broker-dealer. Under the terms of the Notes, any transfer of a Note will be wrongful unless (1) the transfer is effected on a trading system that ~~we approve~~Prosper Funding approves as a Note trading system and (2) the Note has been presented by the registered holder to usProsper Funding or ~~our~~its agent for registration of transfer. The registrar for the Notes, which initially will be ~~us,~~Prosper Funding, will not be obligated to recognize any purported transfer of a Note, except a transfer through the trading system or except as required by applicable law or court order. There can be no assurance, however, that a market for Notes will develop on the Note Trader platform, or that the platform will continue to operate. Therefore, lender members must be prepared to hold their Notes to maturity. See “About ~~Prosper”~~the Platform—Note Trader Platform” for more information.

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No Sinking Fund

The Notes are fully amortizing and will not have the benefit of a sinking fund.

Events of Default

Under the terms of the indenture, any of the following events will constitute an event of default for a series of Notes:

~~our~~Prosper Funding’s failure to make required payments on the Notes for thirty days past the applicable due date;

~~our~~Prosper Funding’s failure to perform, or the breach of, any other covenant for the benefit of the holders of the Notes which continues for 90 days after written notice from the indenture trustee or holders of 25% of the outstanding principal amount of the Notes for which such default exists, subject to an additional 90 day cure period; or

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specified events relating to ~~our~~Prosper Funding’s bankruptcy, insolvency or reorganization.

It is not a default or event of default under the terms of the indenture if ~~we do~~Prosper Funding does not make payments on a series of Notes when a borrower does not make payments on the corresponding borrower loan. In that case, ~~we are~~Prosper Funding is not required to make payments on the Notes, so no default occurs. See “Risk Factors—Risks Related to Borrower Default,” for more information. An event of default with respect to one series of Notes is not automatically an event of default for any other ~~series.~~series, even where the same borrower member is the loan borrower on both loans.

ToAs described above under “Summary of Indenture, Form of Notes and Administration Agreement—Indenture and Form of Notes—Ranking; Security Interest,” to limit the risk of ~~Prosper’s~~Prosper Funding’s insolvency, Prosper Funding has granted the indenture trustee a security interest in ~~Prosper’s right to payment under,~~all of the borrower loans and all payments and proceeds received by Prosper Funding on the ~~corresponding~~ borrower loans and in the bank account in which the borrower loan payments are deposited. The indenture trustee may exercise its legal rights to the collateral only if an event of default has occurred under the indenture. Only the indenture trustee, not the holders of the Notes, will have a secured claim to the above collateral.

If an event of default occurs due to bankruptcy, insolvency or reorganization as provided in the indenture, then the stated principal amount of ~~the~~all outstanding Notes shall become due and payable immediately without any act by the trustee or any holder of Notes.

The holders of a majority in aggregate principal amount of the outstanding Notes of any series, by notice to the trustee (and without notice to any other holder of Notes), may on behalf of the holders of all Notes of the series waive an existing default with respect to such Notes, except (1) a default in the payment of amounts due in respect of such Notes or (2) a default in respect of a provision of the indenture that cannot be amended without the consent of each holder affected by such waiver. When a default is permanently and irrevocably waived, it is deemed cured, but no such waiver shall extend to any subsequent or other default or impair any consequent right.

A Note holder may not institute a suit against usProsper Funding for enforcement of such holder’s rights under the indenture or pursue any other remedy with respect to the indenture or the Notes unless:

the holder gives the trustee written notice stating that an event of default with respect to the Notes is continuing;

the holders of at least 25% in aggregate principal amount of the outstanding Notes of that series make a written request to the trustee to pursue a remedy available under the indenture with respect to such default;

such holder or holders offer the trustee security or indemnity satisfactory to it against any loss, liability or expense;

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the trustee does not comply with the request within 60 days after receipt of the notice, request and offer of security or indemnity; and

the holders of a majority in aggregate principal amount of the outstanding Notes of that series do not give the trustee a direction inconsistent with such request during such 60-day period.

The indenture will require usProsper Funding every year to deliver to the trustee a statement as to performance of ~~our~~its obligations under the indenture and as to any defaults.

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Satisfaction and Discharge of the Indenture

The indenture will generally cease to be of any further effect with respect to a series of Notes if:

all of the Notes of that series (with certain limited exceptions) have been delivered for cancellation; or

all Notes of that series not previously delivered for cancellation have become due and payable or will become due and payable within one year and ~~we have~~Prosper Funding has deposited with the trustee as trust funds the entire amount sufficient to pay at maturity all of the amounts due with respect to those Notes.

In either case, weProsper Funding must also pay or cause to be paid all other sums payable under the indenture by usit and deliver to the trustee an officers’ certificate and opinion of counsel stating that all conditions precedent to the satisfaction and discharge of the indenture have been complied with.

The indenture does not contain any provisions for legal or covenant defeasance of the Notes.

No Recourse Against Others

The Notes are solely limited recourse obligations of Prosper Funding, payable from collections on the corresponding borrower loans as described herein, and are not the obligations of any other person. Neither PMI, in its capacity as servicer, as issuer of the related PMI Management Contracts or otherwise, nor any of Prosper Funding’s directors, officers or affiliates, has any liability for any amounts due on the Notes or the corresponding borrower loans. Each purchaser of a Note, by accepting the same, is deemed to waive and release all such liability.

Governing Law

The indenture and the Notes are governed by the laws of the State of New York without regard to any principle of conflict of laws that would require or permit the application of the laws of any other jurisdiction.

Information Concerning the Trustee

Prosper Funding has selected Wells Fargo Bank, National Association, to serve as the trustee under the indenture. From time to time, ~~we maintain~~Prosper Funding maintains deposit accounts and ~~conduct~~conducts other banking transactions with the trustee and its affiliates in the ordinary course of business. If and when the trustee becomes a creditor of ~~ours,~~Prosper Funding, the trustee will be subject to the provisions of the Trust Indenture Act regarding the collection of claims against ~~us.~~Prosper Funding. The trustee and its affiliates will be permitted to engage in other transactions; however, if they acquire any conflicting interest, the conflict must be eliminated or the trustee must resign.

~~Lender Registration~~Administration Agreement

~~When a lender member registers on~~Prosper Funding and PMI have executed an Administration Agreement pursuant to which PMI has agreed to provide certain corporate administration services, platform administration services and to service all borrower loans and Notes. This prospectus refers to PMI in its separate capacities under the Administration Agreement as follows: (i) in its capacity as the party providing the corporate administration services, as the “Corporate Administrator,” (ii) in its capacity as the party providing the platform administration services, as the ~~lender member enters into a lender registration agreement with us that governs~~“Loan Platform Administrator,” and (iii) in its capacity as the ~~lender member’s purchases of~~party providing the servicing to all borrower loans and Notes, ~~from us. Under~~as the ~~agreement, we provide the lender member the opportunity through the platform to review borrower loan requests~~“Loan and ~~purchase Notes and instruct us to apply the proceeds from the sale of each~~ Note ~~to facilitate the funding of, and our purchase of, a specific borrower loan the lender member has designated.~~Servicer.”

~~Under~~The following summary of the ~~agreement,~~Administration Agreement does not purport to be complete and is qualified in its entirety by the ~~lender member must commit to purchase a Note prior~~complete terms and conditions of the Administration Agreement. A copy of the Administration Agreement is filed as an exhibit to the ~~origination~~registration statement of ~~the borrower loan to~~ which ~~the Note corresponds. At the time the lender member commits to purchase~~this prospectus forms a Note by bidding on a listing, the lender member must have sufficient funds in the lender member’s account with us to complete the purchase, and the lender member will not have access to those funds for as long as the lender member is a winning bidder on the listing. Once the lender member makes a purchase commitment by bidding, it is irrevocable. If the borrower listing does not receive purchase commitments for Notes equal to or exceeding the minimum amount required for the requested borrower loan to fund, then we will inform the lender member and release him or her from the purchase commitment.
part.

Corporate Administration Services

The Corporate Administrator will oversee the daily business operations of Prosper Funding and provide a number of related administrative services. Among other matters, the Corporate Administrator’s duties shall include:

administering Prosper Funding’s day-to-day operations, including paying (solely from Prosper Funding’s funds) Prosper Funding’s fees and expenses,

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INFORMATION ABOUT PROSPER FUNDING LLC

Overview

PMI developed the platform and owned the proprietary technology that makes operation of the platform possible. PMI will transfer the platform to Prosper Funding, giving Prosper Funding the right to operate the peer-to-peer online credit platform to originate and service borrower loans and Notes. PMI owns and is not transferring to Prosper Funding ownership of the computer hardware that PMI currently uses to develop, update, maintain and operate the platform (including the website), produce and record or register loans and Notes, process and record the origination of loans, the acquisition thereof by Prosper Funding, funds transfers in relation to loans and collections on loans, the issuance and transfer of Notes, funds transfers in relation to purchases of and payments on Notes, and which PMI uses to store, backup and manage the information and data used and generated by the platform (such as in relation to the preparation of reports). PMI is a party to agreements with third parties relating to (i) the hosting and maintenance of servers and other computer and communications equipment used by PMI in relation to all of the foregoing aspects of the development, updating of, maintenance and operation of the platform and the provision of related customer support services, (ii) the backup, offsite storage and protection of all information and data produced and used by PMI in relation to all of the foregoing aspects of the development, updating of, maintenance and operation of the platform and the performance by it of all related services, and (iii) maintenance of the integrity, functionality and security of the platform from cyber-attacks and similar threats, which agreements PMI is not assigning to Prosper Funding such that Prosper Funding will not be a party to or third party beneficiary of such agreements.

Prosper Funding also expects to enter into the Administration Agreement, pursuant to which PMI has agreed to provide certain administrative services relating to the platform. The Administration Agreement between Prosper Funding and PMI contains a license granted by Prosper Funding to PMI that entitles PMI to use the platform for and in relation to: (i) PMI’s performance of its duties and obligations under the Administration Agreement relating to corporate administration, loan platform services, loan and note servicing and marketing, and (ii) PMI’s performance of its duties and obligations to WebBank in relation to loan origination and funding. The license is terminable in whole or in part in relation to failure by PMI to pay the licensing fee or the termination of PMI as the provider of some or all of the aforementioned services.

Prosper Funding has been organized and will be operated in a manner that is intended (i) to minimize the likelihood that it will become subject to a voluntary or involuntary bankruptcy or similar proceeding, and (ii) to minimize the likelihood that it would be substantively consolidated with PMI in the event of PMI’s bankruptcy and thus have its assets subjected to claims of PMI’s creditors. Prosper Funding and PMI believe they have achieved this by imposing through Prosper Funding’s organizational documents and covenants in the indenture certain restrictions on Prosper Funding’s activities and certain formalities designed to reinforce Prosper Funding’s status as a distinct entity from PMI. In addition, in the Administration Agreement PMI has agreed, in its dealings with Prosper Funding and with third parties, to observe the “separateness covenants” described below as they relate to Prosper Funding.

Restrictions that Prosper Funding and PMI believe minimize the likelihood that Prosper Funding will become subject to a voluntary or involuntary bankruptcy or similar proceeding include the following:

Prosper Funding’s permissible activities are limited to operating the platform, including entering into the related registration agreements with its members; purchasing, owning, financing and pledging the borrower loans; issuing and selling the Notes; entering into the Administration Agreement (or, if applicable, one or more similar agreements with another entity or entities providing similar services); entering into agreements with third parties (such as WebBank, FOLIOfn Investments, Inc. and a back-up servicer) regarding the purchase and servicing of the borrower loans and the Notes and transfers of Notes between members, its own management and operations, and the issuing, paying, sale and administration of the Notes and other obligations; making requisite filings with the SEC and other authorities, and issuing and furnishing prospectuses and other offering materials; and certain related activities. So long as any Note is outstanding, Prosper Funding is not permitted to engage in any other business.

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So long as any Note is outstanding, Prosper Funding is prohibited from incurring any debt; guarantying the obligations of any other person, including PMI and Prosper Funding’s other affiliates; acquiring any assets except in connection with the permitted activities described above; engaging, directly or indirectly, in any business other than the permitted activities described above; engaging in any dissolution, liquidation, consolidation, merger, asset sale or transfer of ownership interests; or forming, acquiring or holding any subsidiary.

So long as any Note is outstanding, Prosper Funding is required to have at all times two independent directors whose consent is required for it to take certain extraordinary actions, including filing for bankruptcy.

Because Prosper Funding’s activities are essentially limited to operating the platform, dealing with borrower loans and issuing Notes, and Prosper Funding is prohibited from incurring any debt for borrowed money other than the Notes, or liabilities to third parties other than those arising under the agreements it is permitted to enter into, as described above, it should not be subject to the claims of any creditors unrelated to its permissible activities. With the exception of its limited indemnification and repurchase obligations, the Note holders do not have recourse to Prosper Funding for payment of their Notes and must rely on the corresponding borrower loans for payment. Prosper Funding expects to be adequately capitalized, and that its capitalization, together with the fee income that it earns, will be sufficient to meet all of its monetary obligations to affiliates and the third parties with whom it contracts in order to operate the platform and conduct its permitted business activities. Accordingly, Prosper Funding does not expect to have creditors holding unsatisfied claims against it who could seek to place it into bankruptcy involuntarily. For the same reason, Prosper Funding believes it is unlikely that it would become insolvent. Prosper Funding does not believe that its independent directors would approve a voluntary bankruptcy filing, even if such a filing might be advantageous to PMI or Prosper Funding’s other affiliates, if Prosper Funding is not insolvent in its own right, unless another basis for such a filing exists at the time consistent with their fiduciary duties.

Restrictions that Prosper Funding and PMI believe minimize the likelihood that Prosper Funding would be substantively consolidated with PMI in the event of PMI’s bankruptcy and thus have its assets subjected to claims of PMI’s creditors include the following (“separateness covenants”):

Prosper Funding is required to maintain its own books and records and bank accounts separate from those of PMI or any other person;

Prosper Funding is required at all times to hold itself out to the public and all other persons as a legal entity separate from PMI and any other person;

Prosper Funding is required to have a board of directors separate from that of PMI and any other person;

Prosper Funding is required to file its own tax returns, if any, as may be required under applicable law, to the extent it is (1) not part of a consolidated group filing a consolidated return or returns or (2) not treated as a division for tax purposes of another taxpayer, and it must pay any taxes so required to be paid under applicable law;

Except as contemplated by the agreements it enters into in connection with its permissible activities, Prosper Funding may not commingle its assets with assets of PMI or any other person and maintain its funds and other assets such that they shall be separately identified and segregated from those of PMI and any other person;

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Prosper Funding is required to conduct its business in its own name so as not to mislead third parties as to the identity of the entity with which such third parties are dealing and to strictly comply with all organizational formalities to maintain its separate existence;

Prosper Funding is required to maintain separate financial statements and ensure that such financial statements indicate (in the notes thereto or otherwise) the separate existence of Prosper Funding and PMI and their respective assets and liabilities and, to the extent the assets and liabilities of Prosper Funding are represented on the financial statements of PMI, ensure that such financial statements indicate (in the notes thereto or otherwise) the separate existence of Prosper Funding and PMI and their separate assets and liabilities;

Prosper Funding is required to pay its operating expenses and its own liabilities only out of its own funds and not from the funds of any other person;

Prosper Funding is required to maintain an arm’s length relationship with PMI and its other affiliates and to ensure that all transactions between Prosper Funding and its affiliates are on terms and conditions that are not materially more favorable to the affiliate than the terms and conditions that would be expected to have been obtained under similar circumstances from a non-affiliate;

Prosper Funding is required to pay the salaries of its own employees, if any;

Prosper Funding is prohibited from holding out its credit or assets as being available to satisfy the obligations of others;

Prosper Funding is required to allocate fairly and reasonably any overhead for shared office space and pay for its share of such overhead;

Prosper Funding is required, so as not to mislead third parties as to the identity of the entity with which such third parties are dealing, to maintain and utilize separate stationery, invoices and checks;

Except as contemplated by the agreements it enters into in connection with its permissible activities, Prosper Funding is prohibited from pledging its assets for the benefit of any other person;

Prosper Funding is required to correct any known misunderstanding regarding its separate identity;

Prosper Funding is required to maintain adequate capital in light of its contemplated business purpose, transactions and liabilities;

Prosper Funding is required to ensure that it does not enter into any agreement to be named, directly or indirectly, as a direct or contingent beneficiary or loss payee on any insurance policy covering the property of any other person;

Prosper Funding is required to ensure that it will not conceal from creditors any of its assets or participate in concealing the assets of any other person or entity;

Prosper Funding’s board of directors is required to meet at least annually or act pursuant to written consent and keep minutes of such meetings and actions, and Prosper Funding is required to observe all other Delaware limited liability company formalities;

Prosper Funding is prohibited from acquiring any securities of PMI (other than the purchase or other acquisition of certain borrower payment dependent notes issued by PMI and the related borrower loans); and

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Prosper Funding’s directors, officers, agents and other representatives are required to act at all times with respect to Prosper Funding consistently and in furtherance of the foregoing and in Prosper Funding’s best interests.

In addition, as described below under “Information About Prosper Marketplace, Inc.—Relationship with Prosper Funding,” PMI has adopted resolutions limiting its own activities and interactions with Prosper Funding in order further to minimize the likelihood that Prosper Funding would be substantively consolidated with PMI in the event of PMI’s bankruptcy.

Substantive consolidation is a judicially developed equitable doctrine that permits a bankruptcy court, in appropriate circumstances, to disregard the legal separateness of a debtor and a related entity, which may or may not itself be a debtor in bankruptcy, and merge their respective assets and liabilities for bankruptcy purposes. Substantive consolidation typically results in the pooling of all assets and liabilities of the entities to be consolidated, the satisfaction of liabilities from the resulting common fund of assets, and the elimination of all duplicate and inter-entity claims. While the formulation for the standard to apply in determining whether two or more entities should be substantively consolidated in bankruptcy has varied somewhat as among the different courts that have considered such cases, the three most commonly cited tests are as follows:

The proponent seeking substantive consolidation must establish either (1) the entities pre-petition disregarded their separateness so significantly that their creditors relied on the breakdown of entity borders and treated them as one legal entity, or (2) post-petition that the assets and liabilities of the entities are so entangled that separating them is prohibitive and hurts all creditors.

The court must determine (1) whether all creditors dealt with the entities as a single economic unit and did not rely on their separate identity in extending credit or (2) whether the affairs of the two entities are so entangled that consolidation will benefit all creditors.

The proponent of consolidation must make a prima facie case demonstrating that (1) there is substantial identity between the entities to be consolidated and (2) consolidation is necessary to avoid some harm or to realize some benefit. Once the proponent for consolidation has made this showing, the burden shifts to an objecting creditor to show that (1) it has relied on the separate credit of one of the entities to be consolidated and (2) it will be prejudiced by substantive consolidation.

Adherence to the separateness covenants by both Prosper Funding and PMI should negate any argument that the respective assets of Prosper Funding and PMI are impermissibly entangled or impossible to separate. It should be neither difficult nor costly to ascertain the respective assets and liabilities of Prosper Funding and PMI.

Similarly, creditors of PMI should not be able to demonstrate that they dealt with PMI and Prosper Funding as a single economic unit, and creditors of Prosper Funding are not relying on PMI for either the payment of Prosper Funding’s Notes or the performance of Prosper Funding’s obligations under the agreements Prosper Funding enters into in connection with its permissible activities (other than PMI’s performance, for Prosper Funding’s benefit, of PMI’s obligations under the Administration Agreement, and PMI’s own indemnification obligations referred to below). Once Prosper Funding commences its offering of the Notes, (1) the website through which PMI previously operated the platform will have been modified to clearly indicate that borrower members and lender members are dealing with Prosper Funding and not PMI, (2) all new borrower registration agreements and lender registration agreements will be entered into with Prosper Funding and not PMI and will clearly indicate that Prosper Funding is the party with whom borrower and lender members are transacting, and (3) all agreements with third parties (such as WebBank, FOLIOfn Investments, Inc. and a back-up servicer) will have been modified such that the rights and obligations of PMI under such agreements, formerly applicable to the period when PMI operated the platform, will have been assigned to and assumed by Prosper Funding (other than certain indemnification obligations in favor of third parties that will be retained by PMI, and certain other miscellaneous provisions which should not expose PMI to financial liability).

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Accordingly, all of Prosper Funding’s creditors should clearly understand that they are looking to Prosper Funding for the payment and performance of Prosper Funding’s obligations to them, and that PMI is not liable to them for Prosper Funding’s obligations. Prosper Funding and PMI believe the purchasers of Notes will clearly be relying on Prosper Funding being a legal entity separate and distinct from PMI in making their investment decisions and would be materially prejudiced if Prosper Funding were substantively consolidated with PMI. Once Prosper Funding commences its offering of the Notes, PMI will no longer be obligated to third parties under the agreements related to operating the platform except as noted above. There should not be creditors of PMI who would be successful in arguing that they relied on Prosper Funding’s assets and creditworthiness in extending credit to PMI. Finally, all relevant legal formalities required to support Prosper Funding’s legal existence as a Delaware limited liability company separate and distinct from PMI will be strictly observed. Certain hardware and agreements relevant to the development, maintenance and use of the platform, including in relation to the origination, funding and servicing of borrower loans, and the issuance, funding and payment of the Notes, will not be transferred or assigned to Prosper Funding by PMI as described above under “Information About Prosper Funding LLC—Overview.” Although such retention of hardware and agreements should not bear on a bankruptcy court’s analysis of the legal separateness of PMI and Prosper Funding (or their respective assets and liabilities), the cessation of or substantial reduction of the day-to-day operations of PMI (because of or during its bankruptcy or otherwise) would materially impair and delay the ability of Prosper Funding or a back-up servicer to retrieve data and information in the possession of PMI and to operate the platform or elements thereof relevant to loan and Note servicing.

Potential Business Strengths

Prosper Funding believes that the following business strengths differentiate Prosper Funding from competitors and are key to its success:

Scalable Operating Infrastructure: The platform allows Prosper Funding to economically acquire and service borrower loans and Notes, and allows WebBank to efficiently originate and fund such loans. The platform is both flexible and highly scalable;

Proprietary Risk Management Capabilities: PMI is the only company that has developed a proprietary risk model based on P2P specific performance data, which allows PMI to accurately gauge the riskiness of applicants and will allow lender members to earn attractive risk adjusted returns;

Management Team: Prosper Funding has a management team with experience in a broad set of areas that are essential to the operation of a P2P business. These areas include but are not limited to risk management, fraud detection, loan servicing operations, technology development, data management, financial controls, securities regulation, compliance, customer management and website development;

Open access: Prosper Funding allows individuals with a wide range of credit characteristics to apply for loans; and

Transparency and data availability: By making all transactions on the platform visible and available electronically for analysis, Prosper Funding allows its members to better understand its marketplace and make better decisions about their activity.

The platform provides a number of benefits to borrower members. Prosper Funding and PMI believe the key features of the platform are the following:

better interest rates than those available from traditional banks;

24-hour online availability to initiate a loan listing;

convenient, electronic payment processing; and

amortizing, fixed rate loans, which represent a more responsible way for consumers to borrow than revolving credit facilities.

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Corporate History

Prosper Funding was formed in the State of Delaware in February 2012. Its principal executive offices are located at 111 Sutter Street, 22nd Floor, San Francisco, California 94104. Its telephone number at that location is (415) 593-5400. Its website address is www.prosper.com. The information contained on its website is not incorporated by reference into this prospectus.

Marketing

PMI’s marketing efforts are designed to attract individuals and institutions to the platform, to enroll them as members and to have them understand and utilize the services for borrowing or investing in Notes on the platform. Prosper Funding and PMI believe there are significant opportunities to increase the number of members who use the platform through additional marketing initiatives. For example, such marketing initiatives may, but will not necessarily, include e-mail campaigns, presentations and paid search advertisements. PMI employs a combination of paid and unpaid sources to market the platform. PMI also invests in public relations to build its brand and visibility. PMI is constantly seeking new methods to reach more potential members.

PMI attracts members to the platform in a variety of ways, including advertising, search engine results and word-of-mouth referrals. In addition, PMI and the platform have been featured in a variety of media outlets, including television and print media.

PMI continuously measures website visitor-to-member conversion. It tests graphics and layout alternatives in order to improve website conversion. It also seeks to customize the website to its members’ needs whenever possible. PMI carefully analyzes visitor website usage to understand and overcome barriers to conversion.

From time to time, Prosper Funding may conduct special promotions to increase the participation of existing members on the platform or to attract new members. These promotions could include offering special incentives for registering as a lender or a borrower, posting a loan listing, moving money onto the platform, placing bids on loan listings or successfully bidding on a loan listing. The incentives could include cash bonuses or rebates or fee discounts or waivers. These promotions may be offered to all customers for all products or could be restricted to particular products or types of customers. For example, Prosper Funding could conduct a special promotion to attract customers who come to its website through a marketing partnership it has with another company.

For the six months ended June 30, 2012 and 2011, PMI spent approximately $2.4 million and $850,400, respectively, on marketing. Prosper Funding expects to spend similar amounts in the future.

Technology

The system hardware for the platform, which is owned by PMI, is located in a hosting facility in San Francisco, California, owned and operated by Rincon 365 Borrower, LLC under an agreement that expires in August 2014. Generally, unless PMI or Rincon 365 Borrower, LLC delivers a termination notice, the agreement is automatically renewable for three year terms. The facility provides around-the-clock security personnel, video surveillance and biometric access screening and is serviced by onsite electrical generators and fire detection and suppression systems. The facility has multiple interconnects to the Internet, and Internap Network Services Corporation is the Internet service provider for the platform. It also maintains off-site backups at a secure, Tier 1 data center in Las Vegas, Nevada. It backs up all customer data daily and replicates this data offsite via an encrypted connection.

PMI owns all of the hardware deployed in support of the platform. PMI continuously monitors the performance and availability of the platform. The infrastructure is scalable and utilizes standard techniques such as load-balancing and redundancies.

The platform utilizes proprietary accounting software to process electronic cash movements, record book entries and calculate cash balances in members’ funding accounts. PMI processes electronic deposits and payments by originating ACH transactions. This software puts these transactions in the correct ACH transaction data formats and makes book entries between individual members’ accounts using a Write-Once-Read-Many (WORM) ledger system.

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Prosper Funding and PMI expect to enter into a back-up servicing agreement with CSC Logic, Inc., a loan servicing company that is willing and able to transition servicing responsibilities in the event that Prosper Funding and/or PMI are no longer able to service the borrower loans. CSC Logic, Inc. is a financial services company that has extensive experience and knowledge entering into successor loan servicing agreements. It is unlikely that CSC Logic, Inc. would be able to perform functions other than servicing the existing borrower loans and Notes. See “Risk Factors—Arrangements for back-up servicing are limited. If PMI fails to maintain operations, you may experience a delay and increased cost in respect of your expected principal and interest payments on your Notes, and Prosper Funding may be unable to collect and process repayments from borrowers.”

Scalability

The platform is designed and built as a highly scalable, multi-tier, redundant system. It incorporates technologies designed to prevent any single point of failure within the data center from taking the entire system offline. This is achieved by utilizing load-balancing technologies at the front end and business layer tiers and clustering technologies in the back-end tiers to allow scaling both horizontally and vertically depending on platform utilization. In addition, the core network load-balancing, routing and switching infrastructure is built with fully redundant hardware and sub-second failover between those devices.

Data integrity and security

Prosper Funding and PMI transmit all sensitive data to and from customers and service providers using a secure transport protocol. Communication of sensitive data via the web site to customers is secured utilizing SSL 128-bit enabled encryption certificates provided by VeriSign and Thawte, Inc. Communication of sensitive data with service providers is secured utilizing authenticated VPN, SSL 128-bit encryption and SSH protocols depending on the service providers’ requirements. Storage of sensitive data is encrypted utilizing AES 256-bit and 3DES 168-bit cryptographic ciphers, depending upon the service providers’ requirements and internal storage policies. Access to the data by Prosper Funding or PMI personnel is restricted based upon a least-privilege principle such that employees have access only to the information and systems needed to perform their function. In the event of disaster, data is repeatedly stored securely at an offsite data center.

Prosper Funding protects the security of the platform using a multilayered defense strategy incorporating several different security technologies and points of monitoring. At the perimeter of the network, multi-function security technologies implement firewall, intrusion prevention, anti-virus and anti-spam threat management techniques. Internally, the network and hosts are segmented by function with another layer of firewalls and traffic inspection devices. At the host level, the platform utilizes host based intrusion prevention, anti-virus, anti-spyware, and application control systems. Logging and monitoring for network security devices is done in real-time with notifications to the appropriate staff upon any suspicious event or action that requires attention. Logging and monitoring of host systems is done in real-time to a centralized database with web based reporting and additional notification to the appropriate staff for any remediation.

Fraud detection

Prosper Funding considers fraud detection to be of utmost importance to the successful operation of the platform. It employs a combination of proprietary technologies and commercially available licensed technologies and solutions to prevent and detect fraud. Prosper Funding employs techniques such as knowledge based authentication, or KBA, out-of-band authentication and notification, behavioral analytics and digital fingerprinting to prevent identity fraud. Prosper Funding uses services from third-party vendors for user identification, credit checks and for checking customer names against the list of Specially Designated Nationals maintained by the Office of Foreign Assets Control (OFAC). In addition, Prosper Funding uses specialized third-party software to augment its identity fraud detection systems. In addition, PMI has a dedicated team which conducts, on Prosper Funding’s behalf, additional investigations of cases flagged for high fraud risk. See “About the Platform—Borrower Identity and Financial Information Verification” for more information. Prosper Funding also enables its lender members to report suspicious activity, which Prosper Funding may then evaluate further.

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Engineering

PMI has made substantial investment in software and website development and Prosper Funding and PMI expect to continue to make significant investments in software and website development. In addition to developing new products and maintaining an active online deployment, PMI’s technology team also performs technical competitive analysis as well as systematic product usability testing. As of June 30, 2012, PMI’s technology group consisted of twenty-five employees. Those resources will be made available to Prosper Funding pursuant to the Administration Agreement.

Competition

The market for peer-to-peer lending is competitive and rapidly evolving. Prosper Funding believes the following are the principal competitive factors in the peer-to-peer lending market:

fee structure;

website attractiveness;

member experience, including borrower loan funding rates and lender returns;

acceptance as a social network;

branding; and

ease of use.

Prosper Funding’s primary competitors are major credit card issuers, such as JPMorgan Chase Bank, Bank of America and Citibank, other commercial banks, savings banks and consumer finance companies. Prosper Funding also faces competition from other peer-to-peer platforms such as LendingClub.

Prosper Funding may also face future competition from new companies entering the market, which may include large, established companies, such as eBay Inc., Google Inc. or Yahoo! Inc. These companies may have significantly greater financial, technical, marketing and other resources and may be able to devote greater resources to the development, promotion, sale and support of their consumer platforms. These potential competitors may be in a stronger position to respond quickly to new technologies and may be able to undertake more extensive marketing campaigns. These potential competitors may have more extensive potential borrower bases. In addition, these potential competitors may have longer operating histories and greater name recognition. Moreover, if one or more of these competitors were to merge or partner with another competitor or a new market entrant, the change in competitive landscape could adversely affect Prosper Funding’s ability to compete effectively.

Intellectual Property

Prosper Funding’s intellectual property rights are important to its business. Prosper Funding relies on a combination of copyright, trade secret, trademark, and other rights, as well as confidentiality procedures and contractual provisions to protect its proprietary technology, processes and other intellectual property.

Although the protection afforded by copyright, trade secret, trademark, written agreements and common law may provide some advantages, Prosper Funding believes that the following factors help it to maintain a competitive advantage:

the technological skills of the software and website development personnel who developed the platform;

frequent enhancements to the platform and

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high levels of member satisfaction.

Competitors may develop products that are similar to Prosper Funding’s technology. For example, Prosper Funding’s legal agreements may be copied directly from its website by others. As Loan and Note Servicer under the Administration Agreement, PMI will have access to confidential information regarding Prosper Funding’s intellectual property. PMI enters into confidentiality and other written agreements with its employees, consultants and service providers, and through these and other written agreements, attempts to control access to and distribution of the software, documentation and other proprietary technology and information. Despite these efforts to protect Prosper Funding’s proprietary rights, third parties may, in an authorized or unauthorized manner, attempt to use, copy or otherwise obtain and market or distribute Prosper Funding’s intellectual property rights or technology or otherwise develop a product with the same functionality. Policing all unauthorized use of intellectual property rights is nearly impossible. Therefore, Prosper Funding cannot be certain that the steps it has taken or will take in the future will prevent misappropriations of its technology or intellectual property rights.

Prosper Funding and PMI use software developed by PMI. Neither Prosper Funding nor PMI use software licensed by third parties for processing electronic cash movements, recording book entries or calculating cash balances in lender members’ accounts.

Employees

Prosper Funding does not have any employees. As of June 30, 2012, PMI employed 70 full-time employees. Of these employees:

25 were in engineering;

17 were in operations;

14 were in sales and marketing; and

14 were in general and administrative.

None of PMI’s employees are represented by labor unions. PMI has not experienced any work stoppages and Prosper Funding and PMI believe that PMI’s relations with its employees are good.

Facilities

Prosper Funding does not lease or own any real property or equipment. Its headquarters is located in San Francisco, California, where PMI leases workstations and conference rooms under a lease that will expire on July 31, 2013. Prosper Funding believes that its existing facilities are adequate to meet its current needs, and that suitable additional alternative spaces will be available in the future on commercially reasonable terms.

Legal Proceedings

Prosper Funding is not currently subject to any material legal proceedings. Prosper Funding is not aware of any litigation matters which have had, or are expected to have, a material adverse effect on it. PMI is the defendant in a class action lawsuit relating to its sale of loan notes prior to October 16, 2008. For more information see “Risk Factors—Risks Related to Prosper Funding and PMI, the Platform and Prosper Funding’s Ability to Service the Notes—PMI faces a contingent liability for securities law violations in respect of PMI Borrower Loans sold to its lender members from inception until October 16, 2008. This contingent liability may impair its ability to perform its obligations under the Administration Agreement” on page 23.

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INFORMATION ABOUT PROSPER MARKETPLACE, INC.

See “Item 1. Business” beginning on page 371 of ~~our~~PMI’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2011, which is incorporated by reference into this prospectus.

~~GOVERNMENT~~ ~~REGULATION~~PMI is the Issuer of the PMI Management Contracts

~~See “Item 1. Business” beginning~~Each Note will come attached with a PMI Management Contract issued by PMI. Prosper Funding will be the sole issuer of the Notes and PMI will be the sole issuer of the PMI Management Contracts. The PMI Management Contracts will not be separable from the Notes offered on ~~page 45~~the platform and will not be assigned a value separate from the Notes. The PMI Management Contracts relate solely to the services provided by PMI to Prosper Funding pursuant to the Administration Agreement. There are no payment obligations on the part of ~~our Annual Report~~PMI or any third party under or in relation to the PMI Management Contracts that are in any way related to borrower obligations in relation to the borrower loans or in any way related to Prosper Funding’s payment obligations in relation to the Notes. The PMI Management Contracts attached to the Notes will not comprise collateral therefor nor guarantees of any borrower loans or Notes, nor generate any funds or proceeds that will be payable to Prosper Funding, the indenture trustee or holders of Notes in relation to any borrower loans or Notes. Holders of Notes will have no recourse to PMI or its assets in relation to payments on ~~Form 10-K/A~~borrower loans or Notes. If Prosper Funding repurchases any Notes, PMI will concurrently repurchase the related PMI Management Contract for ~~the fiscal year ended December 31, 2011, which is incorporated by reference into this prospectus.~~
zero consideration.

PMI’s Duties Under the Administration Agreement

PMI is a Delaware corporation whose principal office is located at 111 Sutter Street, 22nd Floor, San Francisco, CA 94104. Prosper Funding expects to enter into an Administration Agreement with PMI, pursuant to which Prosper Funding has engaged PMI to provide certain corporate administration services, platform administration services and to service all borrower loans and Notes. This prospectus refers to PMI in its separate capacities under the Administration Agreement as follows: (i) in its capacity as the party providing the corporate administration services, as the “Corporate Administrator,” (ii) in its capacity as the party providing the platform administration services, as the “Loan Platform Administrator” and (iii) in its capacity as the party providing the servicing to all borrower loans and Notes, as the “Loan and Note Servicer.”

In its capacity as Corporate Administrator, PMI will oversee the daily business operations of Prosper Funding and provide a number of related administrative services. Among other matters, the Corporate Administrator’s duties shall include:

administering Prosper Funding’s day-to-day operations, including paying (solely from Prosper Funding’s funds) Prosper Funding’s fees and expenses,

giving notices and communications in Prosper Funding’s behalf as Prosper Funding may be required to give from time to time under its various agreements,

maintaining Prosper Funding’s general accounting records and preparing monthly, quarterly and annual financial statements as may be necessary or appropriate,

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retaining in Prosper Funding’s behalf an accounting firm to audit Prosper Funding’s year-end financial statements,

preparing and filing Prosper Funding’s income, franchise or other tax returns,

causing to be paid (solely from Prosper Funding’s funds) any taxes required to be paid by Prosper Funding,

not knowingly causing Prosper Funding to engage in any activity that would cause Prosper Funding to be subject to income or franchise tax on a net income basis by any taxing jurisdiction outside of the United States,

retaining on Prosper Funding’s behalf outside counsel,

reviewing and analyzing any agreements entered into by Prosper Funding and establishing, in consultation with Prosper Funding, operating procedures to enable Prosper Funding to comply with the terms of such agreements,

providing recordkeeping and maintenance to maintain Prosper Funding’s limited liability company existence,

preparing resolutions for consideration by Prosper Funding’s board of directors in accordance with its limited liability company agreement,

preparing and having executed and filed all documents necessary to qualify Prosper Funding to do business in any jurisdiction in which such qualification is necessary or appropriate,

in conjunction with Prosper Funding’s counsel, monitoring compliance with licensing requirements and applicable laws,

receiving notices on Prosper Funding’s behalf,

notifying Prosper Funding of the institution of any action, suit or proceeding against, or regulatory investigation of, Prosper Funding,

establishing and maintaining all necessary bank accounts of Prosper Funding and managing Prosper Funding’s cash in accordance with the terms and provisions of Prosper Funding’s material contracts,

notifying Prosper Funding, to the extent the Corporate Administrator has actual knowledge thereof, of any failure of a party to a material agreement to perform any of its obligations with respect to Prosper Funding, and

from time to time taking at Prosper Funding’s expense such actions as Prosper Funding may reasonably request, or as the Corporate Administrator deems appropriate.

In its capacity as Loan Platform Administrator, PMI will manage the platform and provide a number of related services. Among other matters, the Loan Platform Administrator’s duties shall include:

managing, maintaining and operating the platform,

the issuance, sale and payment of the Notes,

Prosper Funding’s purchase of borrower loans,

the operation of www.prosper.com, and

the payment (solely from Prosper Funding’s funds) of related fees and expenses.

Among other things, the Loan Platform Administrator will assist Prosper Funding with the issuance and sale of the Notes, the posting and funding of borrower loans (including reviewing the eligibility of applicants to participate on the platform and performing the applicant verification processes described herein) and manage the posting of listings on the website. The Loan Platform Administrator will also assign a Prosper Rating and an interest rate to each listing. See “About the Platform” for more information.

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In its capacity as Loan and Note Servicer, PMI has agreed to service each borrower loan and the corresponding Notes. The Loan and Note Servicer is required at all times to use commercially reasonable efforts to service and collect the borrower loans in accordance with industry standards customary for loans of the same general type and character, in each case (i) in accordance with all applicable laws, and (ii) without regard to (A) any relationship that the Loan and Note Servicer or its affiliates may have with the applicable borrower or Note holder, or (B) the Loan and Note Servicer’s right to receive compensation for its services. This standard of care applicable to the Loan and Note Servicer is called the “Servicing Standard.” Subject to the Servicing Standard, the Loan and Note Servicer has full power and authority to take any actions in connection with the servicing and administration of the borrower loans that the Loan and Note Servicer deems to be necessary or desirable. The Loan and Note Servicer may act alone or through agents, but will remain responsible for the proper performance of its duties by any agents it appoints. Prosper Funding’s ability to collect payments on the borrower loans, and therefore the amount of payments received by the holders of Notes, will be dependent upon the Loan and Note Servicer's performance of its duties under the Administration Agreement.

PMI will in no event be responsible to make payments from its own funds on any Notes or other obligations of the Company. See “Summary of Indenture, Form of Notes and Administration Agreement—Administration Agreement” for more information.

Relationship with PMI

Prosper Funding is a wholly-owned subsidiary of PMI. As Prosper Funding’s sole member, PMI selects all of Prosper Funding’s directors, subject to the requirement that Prosper Funding have two independent directors as long as any Note is outstanding. Three of Prosper Funding’s directors—Joseph L . Toms, Sachin D. Adarkar and Kirk T. Inglis—are officers of PMI. All of Prosper Funding’s officers are also officers of PMI.

Prosper Funding is required by the LLC Agreement to indemnify PMI and any employee, representative, agent or affiliate of PMI (collectively, the “Covered Persons”), for any Covered Loss incurred by such Covered Person by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of Prosper Funding and in a manner reasonably believed to be within the scope of the authority conferred on such Covered Person, except for any act or omission that constitutes gross negligence or willful misconduct. The term “Covered Loss” includes any loss, damage or claim incurred by (i) PMI solely in its capacity as Prosper Funding’s sole member (and not in its capacity as Loan and Note Servicer or otherwise pursuant to the Administration Agreement) or (ii) any other Covered Person when acting on behalf of PMI in its capacity as Prosper Funding’s sole member. Covered Losses do not include any loss, damage or claim for which PMI separately would be required to indemnify Prosper Funding under the Administration Agreement or any other contract. Prosper Funding is required to make indemnification payments only from funds that are not required to be applied to payments on the Notes and that are not needed to make current payments to third parties.

Moreover, PMI has adopted resolutions to govern its relationship with Prosper Funding. According to its resolutions, PMI shall:

Maintain and utilize separate stationery or letterhead, invoices and checks from Prosper Funding;

Maintain its own books, records and bank accounts separate from those of Prosper Funding;

Pay its operating expenses and own liabilities only out of its own funds, and not from the funds of Prosper Funding (other than those distributed to PMI as member thereof in a manner consistent with the limited liability company agreement of Prosper Funding and Prosper Funding's other material contracts) and not fund the operating expenses or liabilities of Prosper Funding out of the funds of PMI;

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Not guarantee, hold itself out as being liable for or pledge or commit its assets or credit to secure or fund payment of the obligations or liabilities of Prosper Funding, and not cause Prosper Funding to guarantee, hold itself out as being liable for or pledge or commit its assets or credit to secure or fund payment of the obligations or liabilities of PMI;

Not commingle its assets with assets of Prosper Funding, and not utilize the assets of Prosper Funding as if they were assets of PMI, but instead maintain its funds and other assets separately identified and segregated from those of Prosper Funding;

File its own tax returns and pay its own taxes, if any, as may be required under applicable law, except to the extent that applicable law requires PMI to file tax returns that include Prosper Funding in the consolidated tax returns of PMI;

Produce and maintain separate financial statements and reports and ensure that such financial statements and reports appropriately indicate (in the notes thereto or otherwise) the separate existence of PMI and Prosper Funding and their respective assets and liabilities, and to the extent the assets and liabilities of Prosper Funding are represented in the consolidated financial statements of PMI, ensure that such financial statements appropriately indicate (in the notes or otherwise) the separate existence of PMI and Prosper Funding and their separate assets and liabilities;

Ensure that all agreements, contracts and transactions between PMI and Prosper Funding are on terms and conditions that are not materially more favorable to PMI or Prosper Funding than the terms and conditions that would be expected to have been obtained under similar circumstances, from a party not affiliated with PMI or Prosper Funding (particularly including terms and conditions relating to compensation or consideration payable by one to the other, indemnification, exclusivity, rights of first offer, term and termination);

Not enter into any agreement to be named, directly or indirectly, as a direct or contingent beneficiary or loss payee on any insurance policy covering the property of Prosper Funding or to cause Prosper Funding to be named, directly or indirectly, as a direct or contingent beneficiary or loss payee on any insurance policy covering the property of Prosper Funding; and

Not sell any of its securities to Prosper Funding (other than the transfer of certain direct loans originated through the platform prior to the transfer of the same to Prosper Funding).

The resolutions also provide that to avoid any confusion by third parties with respect to the separate existence, operation, assets and credit and other obligations and liabilities of PMI and Prosper Funding, PMI shall observe the following additional principles:

PMI shall, at all times, in its public filings, press releases, websites and otherwise, hold itself out to the public and all other persons and entities as a legal entity separate from Prosper Funding and cause Prosper Funding to hold itself out to the public and all other persons and entities as a legal entity separate from PMI;

PMI shall conduct its business in its own name so as not to mislead third parties as to the identity of the entity with which such third parties are dealing and strictly comply with all organizational formalities and the principles listed in these resolutions to maintain its separate existence;

To the extent that PMI acts as an agent for or on behalf of Prosper Funding pursuant to any administrative services, servicing or other agreement or arrangement, PMI shall take reasonable steps to ensure that third parties understand that PMI is acting in such capacity for or on behalf of Prosper Funding and not for itself or its own account; and

PMI shall take prompt and reasonable action to correct any known misunderstanding regarding the separateness of its legal identity, assets, credit, obligations and liabilities from those of Prosper Funding.

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PMI’s Fees

Prosper Funding has agreed to compensate PMI with three fees for its various roles and related services under the Administration Agreement.

First, Prosper Funding will pay the Corporate Administrator a monthly corporate administration fee for its administrative services in overseeing the daily business operations of Prosper Funding (the “PMI Corporate Administration Fee”) commencing on December 28, 2012, or such later date as agreed among the parties to the Administration Agreement. This monthly fee will be in an amount equal to one-twelfth (1/12) of the following specified amounts:

2012 — $800,000

2013 — $865,000

provided that, in the case of the first such payment date, the amount due shall be pro-rated by the number of days since the date on which the Corporate Administrator started to provide the corporate administration services specified in the Administration Agreement and the first such payment date; provided further that, in the case of the last payment of the PMI Corporate Administration Fee due under the Administration Agreement, the amount due shall be pro-rated by the number of days from the last monthly fee payment date and the date on which the Corporate Administrator stopped providing the corporate administrative services specified in the Administration Agreement.

Second, Prosper Funding will pay the Loan Platform Administrator a monthly platform administration fee for its services in managing the platform (the “PMI Loan Platform Servicing Fee”) commencing on December 28, 2012 or such later date as of which at least 12,000 borrower loans have funded through the platform after the effective date of the Administration Agreement. This fee will be in an amount equal to the product of $112.50 and the number of borrower loans funded since the last monthly fee payment date (or, in the case of the first such payment date, since the date of the Administration Agreement).

Third, Prosper Funding will pay the Loan and Note Servicer a monthly servicing fee for its services in servicing the borrower loans (the “PMI Loan and Note Servicing Fee” and, together with the PMI Corporate Administration Fee and the PMI Loan Platform Servicing Fee, the “PMI Fees”) commencing on December 28, 2012, or such later date as agreed among the parties to the Administration Agreement. This fee will be in an amount equal to 90% of all servicing fees collected by or on behalf of Prosper Funding and all non-sufficient funds fees collected by or on behalf of Prosper Funding since the last monthly fee payment date (or, in the case of the first such payment date, since the date of the Administration Agreement).

PMI’s Historical Performance

See “About the Platform—Historical Performance of PMI Borrower Loans” for information regarding PMI’s historical performance.

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GOVERNMENT REGULATION

Overview

The consumer loan industry is highly regulated. Prosper Funding, PMI and the borrower loans made through the platform are subject to extensive and complex rules and regulations. Prosper Funding and PMI also are subject to licensing and examination by various federal, state and local government authorities. These authorities impose obligations and restrictions on Prosper Funding and PMI’s activities and the borrower loans made through the platform. In particular, these rules limit the fees that may be assessed on the borrower loans, require extensive disclosure to, and consents from, applicants and borrowers, prohibit discrimination and impose multiple qualification and licensing obligations on platform activities. Failure to comply with these requirements may result in, among other things, revocation of required licenses or registration, loss of approved status, voiding of loan contracts, indemnification liability to contract counterparties, class action lawsuits, administrative enforcement actions and civil and criminal liability. While compliance with such requirements is at times complicated by Prosper Funding and PMI’s novel business model, Prosper Funding and PMI believe they are in substantial compliance with these rules and regulations. These rules and regulations are subject to continuous change, however, and a material change could have an adverse effect on Prosper Funding and PMI’s compliance efforts and ability to operate.

Regulation and Consumer Protection Laws

State and Federal Laws and Regulations

State Licensing Requirements. PMI holds consumer lending licenses or similar authorizations in 16 states. PMI is subject to supervision and examination by the state regulatory authorities that administer the state lending laws. The licensing statutes vary from state to state and variously prescribe or impose recordkeeping requirements; restrictions on loan origination and servicing practices, including limits on finance charges and the type, amount and manner of charging fees; disclosure requirements; requirements that licensees submit to periodic examination; surety bond and minimum specified net worth requirements; periodic financial reporting requirements; notification requirements for changes in principal officers, stock ownership or corporate control; restrictions on advertising; and requirements that loan forms be submitted for review.

WebBank is a Utah-chartered industrial bank organized under Title 7, Chapter 8 of the Utah Code and has its deposits insured by the Federal Deposit Insurance Corporation, or FDIC. WebBank is subject to supervision and examination by the Utah Department of Financial Institutions and the FDIC. Applicable federal law preempts state usury limitations and allows FDIC-insured depository institutions, such as WebBank, to “export” the interest rates permitted under the laws of the state where the bank is located when making loans to borrowers who reside in other states, regardless of the usury limitations imposed by the state law of the borrower’s residence. WebBank is located in Utah, and Utah law does not limit the amount of interest that may be charged on loans of the type offered through the platform. A few jurisdictions have elected to opt out of the federal usury preemption available to state-chartered, FDIC-insured banks. To the extent that a WebBank borrower loan is deemed to be “made” in such a jurisdiction, the loan would be subject to the maximum interest rate limit of such jurisdiction.

Truth-in-Lending Act. The federal Truth-in-Lending Act (TILA), and the regulation issued by the Federal Reserve Board implementing the TILA, Regulation Z, requires disclosure of, among other things, the annual percentage rate, the finance charge, the amount financed, the number of payments, and the amount of the monthly payment on consumer loans. WebBank provides borrowers with a TILA disclosure form when borrower loans are originated and seeks to comply with TILA’s disclosure requirements relating to credit advertising.

Equal Credit Opportunity Act. The federal Equal Credit Opportunity Act (ECOA) and the regulation issued by the Federal Reserve Board implementing the ECOA, Regulation B, prohibit discrimination in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, age (with certain limited exceptions), because all or part of the applicant’s income derives from any public assistance program, or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. Prosper Funding, PMI and WebBank comply with the ECOA’s nondiscrimination requirements, and the lender registration agreement requires lender members to comply with the ECOA in their bidding practices. Prosper Funding also requires individual group leaders who form groups to comply with the ECOA in that they are prohibited from excluding individuals from membership in a group on a prohibited basis.

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The ECOA also requires creditors to provide consumers with notice of adverse action taken on credit applications, giving the consumer the principal reasons why adverse action was taken. PMI and WebBank provide prospective borrowers who attempt but fail to obtain a borrower loan through the platform with an adverse action notice in compliance with the ECOA’s requirements.

Fair Credit Reporting Act. The federal Fair Credit Reporting Act (FCRA), administered by the Federal Trade Commission, promotes the accuracy, fairness and privacy of information in the files of consumer reporting agencies. In addition to requirements on credit bureaus, the FCRA requires that users of consumer credit reports have a permissible purpose to obtain a credit report on a consumer and that persons who furnish loan payment information to credit bureaus report such information accurately. The FCRA also has disclosure requirements for creditors who take adverse action on credit applications based on information contained in a credit report. WebBank, and PMI as its agent in relation to borrower loan originations, have a permissible purpose for obtaining credit reports on borrower members and they report loan payment and delinquency information to the credit bureaus in compliance with the FCRA. PMI and WebBank’s adverse action notices contain the disclosures required by the FCRA.

Fair Debt Collection Practices Act. The federal Fair Debt Collection Practices Act (FDCPA) provides guidelines and limitations on the conduct of third party debt collectors in connection with the collection of consumer debts. The FDCPA limits certain communications with third parties, imposes notice and debt validation requirements, and prohibits threatening, harassing or abusive conduct in the course of debt collection. While the FDCPA applies to third party debt collectors, debt collection laws of certain states, including California, impose similar requirements on creditors who collect their own debts. In order to ensure compliance with the FDCPA, Prosper Funding has contracted with professional third party debt collection agencies to engage in debt collection activities. Prosper Funding’s agreements with lender members and group leaders prohibit registered lender members and group leaders from attempting to directly collect on the Notes, and Prosper Funding has established procedures to ensure that lender members and group leaders do not attempt to collect on the Notes themselves.

Servicemembers Civil Relief Act. The federal Servicemembers Civil Relief Act (SCRA) allows military members to suspend or postpone certain civil obligations so that military members can devote their full attention to military duties. In accordance with the SCRA, PMI must adjust the interest rate of borrowers on active duty and other military personnel who qualify for and request relief. If a borrower with an outstanding borrower loan is called to active military duty, PMI will reduce the interest rate on the borrower loan to 6% for the duration of the borrower’s active duty. During this period, the holders of the corresponding Notes will not receive the difference between 6% and the interest rate on the Notes. For borrowers to obtain an interest rate reduction on a borrower loan due to military service, PMI requires the borrowers to send it a written request and a copy of the borrower’s mobilization orders. Neither Prosper Funding nor PMI takes military service into account in assigning Prosper Ratings to listings.

Other Lending Regulations. Prosper Funding and PMI are subject to and seek to comply with other state and federal laws and regulations applicable to consumer lending, including additional requirements relating to loan disclosure, credit discrimination, credit reporting, debt collection and unfair, deceptive or abusive business practices. These laws and regulations may be enforced by state consumer credit regulatory agencies, state attorneys general, the Federal Trade Commission, and private litigants, among others. Given Prosper Funding and PMI’s novel business model and the subjective nature of some of these laws and regulations, particularly laws regulating unfair or deceptive business practices, Prosper Funding and PMI may become subject to regulatory scrutiny or legal challenge with respect to their compliance with these requirements.

Electronic Funds Transfer Act. The federal Electronic Funds Transfer Act (EFTA) and the regulation issued by the Federal Reserve Board implementing the EFTA, Regulation E, place guidelines and restrictions on the electronic transfer of funds from consumers’ bank accounts, including preauthorized electronic fund transfers from consumers’ accounts to make loan payments. Most transfers of funds in connection with the origination and repayment of Notes and bidding on the platform are done by Automated Clearing House (ACH) electronic transfers of funds subject to detailed timing and notification rules and guidelines administered by the National Automated Clearinghouse Association (NACHA). Transfers of funds on the platform are done in conformity with the EFTA and its regulations, as well as NACHA guidelines.

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Electronic Signatures in Global and National Commerce Act. The federal Electronic Signatures in Global and National Commerce Act (ESIGN) and similar state laws authorize the creation of legally binding and enforceable agreements, including electronic loan agreements, utilizing electronic records and electronic signatures. ESIGN imposes special requirements on businesses that want to use electronic records or signatures in consumer transactions, and requires businesses to obtain from consumers electronic consent or confirmation to receive information electronically that a law requires be in writing. When a platform participant registers on the platform, PMI obtains his or her consent to transact business electronically with Prosper Funding and WebBank and maintains electronic records in compliance with ESIGN requirements.

Privacy and Data Security Laws. The federal Gramm-Leach-Bliley Act (GLBA) limits the disclosure of nonpublic personal information about a consumer to nonaffiliated third parties and requires financial institutions to disclose certain privacy policies and practices with respect to its information sharing with both affiliates and nonaffiliated third parties. A number of states have enacted privacy and data security laws requiring safeguards on the privacy and security of consumers’ personally identifiable information. Prosper Funding and PMI have privacy policies that conform to GLBA requirements. In addition, both Prosper Funding and PMI have policies and procedures intended to maintain platform participants’ personal information securely, and neither entity sells or rents such information to third parties for marketing purposes.

OFAC and Bank Secrecy Act. Prosper Funding and PMI check customer names against the list of Specially Designated Nationals maintained by the Office of Foreign Assets Control (OFAC). Prosper Funding and PMI have also instituted procedures to comply with the anti-money laundering requirements of the USA PATRIOT Act and the Bank Secrecy Act.

State Securities Laws.�� Prosper Funding and PMI are subject to the securities laws of each state in which the registration or qualification to offer and sell the Securities has been approved. Certain of these state laws require Prosper Funding and PMI to renew their registration or qualification on an annual basis. In August 2010 and October 2011, PMI was inadvertently late in filing applications to renew its registrations or qualifications in several states. Although all of these renewal applications were approved, PMI agreed to pay the following penalties in connection with the late filings: (i) $300 to the State of Washington; (ii) $25,000 to the State of California; (iii) $45,000 to the State of Connecticut; (iv) $500 to the State of Illinois; and (v) $5,000 to the State of Maine. In addition, the Florida Office of Financial Regulation required PMI to make a rescission offer to any Florida resident who purchased a note from PMI during the period in which PMI inadvertently allowed its registration in Florida to expire. PMI made this rescission offer on February 4, 2011. The offer expired on March 6, 2011, and on March 20, 2011, PMI repurchased $21,900 of Notes from persons who accepted the rescission offer.

Foreign Laws and Regulations

Prosper Funding does not permit non-U.S. residents to register as members on the platform and neither Prosper Funding nor PMI operate outside the United States. Therefore, neither Prosper Funding nor PMI are subject to foreign laws or regulations.

States in Which Prosper Funding and PMI Currently Operate

The platform operates online only and is available to borrower members in all states except Iowa, Maine and North Dakota. Prosper Funding and PMI intend to register or qualify the offer and sale of the Securities in each of the 50 states as well as Washington D.C., and will offer the Securities in each jurisdiction where they obtain such qualification or where such registration is declared effective, subject to any applicable state suitability requirements.

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MANAGEMENT

Prosper Funding LLC

The following table sets forth information about ~~the Company’s~~Prosper Funding’s executive officers and directors as of the date of this prospectus:

Name	Age	Position(s)

Joseph L. Toms	54	President and Director

Sachin D. Adarkar	46	Secretary and Director

Kirk T. Inglis	45	Vice President, Treasurer and Director

Bernard J. Angelo	42	Director

Kevin P. Burns	43	Director

Joseph Toms is Prosper Funding’s President and one of Prosper Funding’s directors. Mr. Toms has served as Chief Investment Officer of PMI since June 2011. Prior to joining PMI, Mr. Toms served as the Managing Director of LendingClub Advisors from September 2010 to June 2011, where he was responsible for investment, sales and marketing strategies and investment research. Previously, he served as President and CIO of Compass Global Advisors, a $2 billion dollar Fund of Funds from 2008 to 2009, and was a Director for various RAB Capital Funds from 2007 to 2008. Mr. Toms was also the Founder, Chief Investment Officer, President, and Managing Principal of Hilspen Capital Management, LLC from 1996 to 2010. From 1985 to 1996, Mr. Toms served in various capacities at Fisher Investments, which included Director of Research and Senior Vice President, as well as being one of Fisher Investments’ original shareholders and employees. Mr. Toms holds a Bachelor of Arts degree in Political Science from the University of California, Santa Barbara. Prosper Funding believes that Mr. Toms’ financial and business expertise, including his experience with the consumer credit industry, as well as his general operational and management experience, give him the qualifications and experience to serve as a director.

Sachin D. Adarkar is Prosper Funding’s Secretary and one of Prosper Funding’s directors. Mr. Adarkar has served as PMI’s General Counsel since August 2009. Prior to joining PMI, he was at the law firm of Sonnenschein, Nath & Rosenthal LLP in Palo Alto, CA from 2007 until 2009. Prior to joining Sonnenschein, Mr. Adarkar served as Vice President and Deputy General Counsel of GreenPoint Mortgage Funding, Inc., a wholesale mortgage lender in Novato, CA, from 2003 until 2007. Prior to joining GreenPoint, Mr. Adarkar spent several years practicing with the law firms of Gibson Dunn & Crutcher LLP and Howard Rice Nemerovski Canady Falk & Rabkin, both in San Francisco, and also served as Vice President and General Counsel of Valley Media, Inc., a music and video distributor. Mr. Adarkar has a J.D. from UCLA, an M.A. from the University of California at Berkeley and a B.A., cum laude, from Georgetown University. Mr. Adarkar is a member of the California Bar. Prosper Funding believes that Mr. Adarkar’s financial and compliance expertise, including his experience with financial service companies and lending companies, as well as his general operational and management experience, give him the qualifications and skills to serve as a director.

Kirk T. Inglis is Prosper Funding’s Vice President and Treasurer and is one of Prosper Funding’s directors. Mr. Inglis has served as PMI’s Chief Operating Officer since June 2009. From 2006 to June 2012, he served as PMI’s Chief Financial Officer. Prior to joining PMI in 2006, he worked as a consultant for Wells Fargo Bank, N.A., consulting on the effectiveness of their online marketing program. From 1994 to 2003, Mr. Inglis served in various positions with Providian Financial Corporation. At Providian, Mr. Inglis served as President of First Select Corporation, the largest purchaser of charged-off credit card debt in the United States, from 2000 to 2001. In addition, he served as Chief Financial Officer of GetSmart.com following its acquisition by Providian in 1999. Mr. Inglis also developed the financial planning and control infrastructure for Providian Financial Corporation following the spin-off from its parent company in 1996. Mr. Inglis holds an M.B.A. from Memphis State University and a B.A. from the University of Texas at Austin. Prosper Funding believes that Mr. Inglis’ financial and business expertise, including his experience with the consumer credit industry, as well as his general operational and management experience, give him the qualifications and skills to serve as a director.

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Bernard J. Angelo has served on Prosper Funding’s board of directors since March of 2012. Mr. Angelo joined Global Securitization Services, LLC (“Global Securitization”) in April 1997 and has extensive experience in managing commercial paper and medium term note programs. In addition to his administrative skills, he has over twelve years of experience in both the business and legal side of structured finance. At Global Securitization, Mr. Angelo has been active in assisting clients and their legal counsel during the structuring phase of their transactions as well as assimilating bank sponsored commercial paper programs into the operating matrix at Global Securitization. Prior to joining Global Securitization, Mr. Angelo was an Assistant Vice President at Bankers Trust Company from January 1993 to April 1997 where he was responsible for oversight of the treasury and accounting functions on the Corporate Trust side of structured transactions managed by the bank. Mr. Angelo currently also serves on the board of ATAX TEBS I, LLC, Bay View Deposit Corporation, BEC Funding II LLC, Carmax Auto Funding LLC, CEC Funding LLC, CenterPoint Energy Transition Bond Company II, LLC, CenterPoint Energy Transition Bond Company III, LLC, CenterPoint Energy Transition Bond Company LLC, Ford Credit Auto Receivables Two LLC, National City Mortgage Capital LLC, PG&E Energy Recovery Funding LLC, and World Omni Auto Receivables LLC. He has a B.S. in Finance from Siena College. Prosper Funding believes that Mr. Angelo’s experience in structured finance as well as his general management experience, give him the qualifications and skills to serve as a director.

Kevin P. Burns has served on Prosper Funding’s board of directors since March of 2012. Mr. Burns is a co-founder of Global Securitization and has twenty years of direct experience in managing special purpose vehicles. Mr. Burns’ broad experience in the sophisticated uses of SPV’s is a resource that benefits the firm’s clients and their advisors as they structure and launch finance programs. Prior to co-founding Global Securitization, Mr. Burns spent over four years with Lord Securities Corporation where he became a Director and Vice President. He developed his expertise while managing all of the firm’s asset backed commercial paper administration efforts. Mr. Burns is a graduate of the University of Notre Dame with degrees in Philosophy, Finance and Business Economics. Mr. Burns currently also serves on the board of Chesapeake Finance Holdings LLC, Deutsche Alt-A Securities, Inc., Deutsche Mortgage Securities, Inc., Ford Credit Auto Receivables Two LLC, Volkswagen Auto Lease/Loan Underwriting Funding, LLC, Volkswagen Dealer Finance, LLC, and Volkswagen Public Auto Loan Securitization LLC. Prosper Funding believes that Mr. Burns’ experience in structured finance as well as his general management experience, give him the qualifications and skills to serve as a director.

Director Attributes

Prosper Funding’s goal is to assemble a board of directors that operates cohesively and works with management in a constructive way. Prosper Funding believes that its directors possess valuable experience and the knowledge necessary to guide its business. Its current board of directors consists of individuals with proven records of success in their chosen professions. They all have the highest integrity and a keen intellect. They are collegial yet independent in their thinking, and are committed to the hard work necessary to be informed about the lending industry, Prosper Funding, and its key constituents, including borrower members, lender members, stockholders and management.

Director Compensation

Prosper Funding does not compensate its directors for service on the Board. On March 1, 2012, Prosper Funding, PMI, Global Securitization Services, LLC (“GSS”), and Prosper Funding’s independent directors, Kevin Burns and Bernard Angelo, who are employees of GSS and are described as the “GSS representatives,” entered into a Services and Indemnity Agreement (the “GSS Agreement”), pursuant to which, among other things, (i) GSS and the GSS representatives agreed that the GSS representatives would serve as Prosper Funding’s independent directors, and (ii) Prosper Funding agreed to pay GSS an annual fee of $5,000 as compensation for providing such independent director services. Prosper Funding does not consider the annual fee it pays to GSS to constitute director compensation, but such payment could be construed to constitute compensation of Bernard Angelo and Kevin Burns and, therefore, is reflected as compensation in the table below.

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Name	Fees earned or paid in cash ($)		Stock awards ($)		Option awards ($)		Non-equity incentive plan compensation ($)		Nonqualified deferred compensation earnings ($)		All other compensation ($)		Total ($)
Joseph L. Toms		-		-		-		-		-		-		-
Kirk T. Inglis		-		-		-		-		-		-		-
Sachin D. Adarkar		-		-		-		-		-		-		-
Bernard J. Angelo		2,500		-		-		-		-		-		2,500
Kevin P. Burns		2,500		-		-		-		-		-		2,500

Limitations on Officers’ and Directors’ Liability and Indemnification Agreements

The LLC Agreement provides that, to the fullest extent permitted by applicable law, Prosper Funding’s directors and officers will not be liable to Prosper Funding for, and shall be indemnified by Prosper Funding against, any loss, damage or claim incurred by reason of any act or omission performed or omitted by such officer or director in good faith on Prosper Funding’s behalf and in a manner reasonably believed to be within the scope of the authority conferred on the officer or director by the LLC Agreement, except for any loss, damage or claim incurred by reason of the officer’s or director’s gross negligence or willful misconduct; provided, however, that any such indemnity shall be provided out of and to the extent of Prosper Funding’s assets only. In addition, the LLC Agreement provides that, to the fullest extent permitted by applicable law, Prosper Funding may advance any expenses incurred by an officer or director defending any claim, demand, action, suit or proceeding prior to its final disposition, upon Prosper Funding’s receipt of an undertaking by or on behalf of the officer or director to repay such amount if it is determined that the officer or director is not entitled to be indemnified under the LLC Agreement. Prosper Funding will not pay any such indemnification from any borrower loan collections that are allocable to the payment of Notes.

Under the GSS Agreement, PMI has agreed to indemnify the GSS Representatives and GSS (collectively, the “Indemnitees”) against any loss, damage or claim incurred by the Indemnitees as a result of the GSS Representatives’ service as independent directors for Prosper Funding or by reason of any act or omission performed or omitted by the GSS Representatives as Prosper Funding’s independent directors, except for any loss, damage or claim incurred by reason of the GSS Representative’s gross negligence or willful misconduct. If any proceeding is asserted against the Indemnitees for which they may be indemnified under the GSS Agreement, PMI will retain and direct counsel to defend such action and will be responsible for paying all reasonable fees and disbursements of such counsel. The Indemnitees have the right to approve such counsel, but may not unreasonably withhold approval. If a court of competent jurisdiction determines that an Indemnitee is not entitled to indemnification under the GSS Agreement, GSS must repay any amounts paid by PMI to or on behalf of such Indemnitee in connection with those matters as to which it has been determined that such Indemnitee is not entitled to indemnification.

Prosper Funding believes that these provisions are necessary to attract and retain qualified persons as directors and officers. To the extent these provisions permit Prosper Funding to indemnify its officers and directors for liabilities arising under the Securities Act, however, Prosper Funding has been informed by the SEC that such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

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Prosper Marketplace, Inc.

The following table sets forth information about PMI’s executive officers and directors as of the date of this prospectus:

Name	Age	Position(s)

Dawn G. Lepore	57	President and Chief Executive Officer

Sachin D. Adarkar	46	General Counsel

Roberto Arnetoli	43	Chief Technology Officer

Kirk T. Inglis	45	Chief Operating Officer

Daniel P. Sanford	56	Senior Vice President, Finance

Lawrence W. Cheng	37	Director

Court Coursey	40	Director

Timothy C. Draper	54	Director

Jeff Jacobs	62	Director

Christian A. Larsen	51	Chairman, Director

Eric Schwartz	49	Director

David Silverman	41	Director

Nigel W. Morris	53	Director

Dawn G. Lepore has served as ~~the Company’s~~PMI’s President and Chief Executive Officer since March 2012. Prior to joining ~~the Company,~~PMI, Ms. Lepore served as president, chief executive officer and chairman of the board of drugstore.com, inc., an online provider of health, beauty, vision, and pharmacy products from October 2004 until June 2011. Ms. Lepore served as vice chairman—Active Trader, technology, operations, administration and business strategy of The Charles Schwab Corporation (“CSC”) from August 2003 to October 2004. CSC, through Charles Schwab & Co., Inc. (“Schwab”) and its other operating subsidiaries, is a financial services firm. Ms. Lepore served as vice chairman—technology, Active Trader, operations, and administration of CSC and Schwab from May 2003 until August 2003, as vice chairman—technology, operations and administration of CSC and Schwab from July 2002 until May 2003, as vice chairman—technology and administration of CSC and Schwab from 2001 to 2002, as vice chairman and chief information officer of CSC and Schwab from 1999 to 2001, and as executive vice president and chief information officer of CSC and Schwab from 1993 to 1999. She currently serves as a director of eBay Inc., a public company and Coupons.com Incorporated, a privately held company. Ms. Lepore received a B.A. from Smith College.

Sachin D. Adarkar has served as ~~the Company’s~~PMI’s General Counsel since August 2009. Mr. Adarkar is also Secretary and a director of Prosper Funding. Prior to joining ~~the Company,~~PMI, Mr. Adarkar was at the law firm of Sonnenschein, Nath & Rosenthal LLP in Palo Alto, CA from 2007 until 2009. Prior to joining Sonnenschein, Mr. Adarkar served as Vice President and Deputy General Counsel of GreenPoint Mortgage Funding, Inc, a wholesale mortgage lender in Novato, CA, from 2003 until 2007. Prior to joining GreenPoint, Mr. Adarkar spent several years practicing with the law firms of Gibson Dunn & Crutcher LLP and Howard Rice Nemerovski Canady Falk & Rabkin, both in San Francisco, and also served as Vice President and General Counsel of Valley Media, Inc., a music and video distributor. Mr. Adarkar has a J.D. from UCLA, an M.A. from the University of California at Berkeley and a B.A., cum laude, from Georgetown University.

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Roberto Arnetoli has served as ~~the Company’s~~PMI’s Chief Technology Officer since October 2010. Prior to joining ~~the Company,~~PMI, Mr. Arnetoli worked as an independent consultant for various European consumer finance organizations from 2003 to 2010, including Rabobank (The Netherlands), Clarima of Unicredit Group (Italy) and Consum.it of MPS (Italy), and for MasterCard Advisors. Prior to his work as an independent consultant, Mr. Arnetoli worked for Capital One in the United Kingdom and Italy, serving in various operations and technology management capacities. In particular he was responsible for the operational and technological setup of Capital One's Italian start-up business (2001-2003). Mr. Arnetoli has an M.Sc. in Management Science and Statistics from the University of the West of England and a B.A. in Philosophy and Psychological Studies from the Open University of the United Kingdom; he also followed INSEAD's International Executive Programme.

Kirk T. Inglis has served as ~~the Company’s~~PMI’s Chief Operating Officer since June 2009. Mr. Inglis is also Vice President, Treasurer and a director of Prosper Funding. From 2006 to June 2012, Mr. Inglis served as ~~the Company’s~~PMI’s Chief Financial Officer. Prior to joining ~~the Company,~~PMI, in 2006, Mr. Inglis worked as a consultant for Wells Fargo Bank, N.A., consulting on the effectiveness of their online marketing program. From 1994 to 2003, Mr. Inglis served in various positions with Providian Financial Corporation. At Providian, Mr. Inglis served as President of First Select Corporation, the largest purchaser of charged-off credit card debt in the United States, from 2000 to 2001. In addition, he served as Chief Financial Officer of GetSmart.com following its acquisition by Providian in 1999. Mr. Inglis also developed the financial planning and control infrastructure for Providian Financial Corporation following the spin-off from its parent company in 1996. Mr. Inglis holds an M.B.A. from Memphis State University and a B.A. from the University of Texas at Austin.

Daniel P. Sanford has served as ~~the Company’s~~PMI’s Senior Vice President, Finance since December 2011. Prior to joining ~~the Company,~~PMI, Mr. Sanford co-founded and served as the Chief Financial Officer of a consumer home owner financial services company, Home Value Protection, Inc., from 2010 to 2011. From 2005 to 2010, Mr. Sanford served as Senior Vice President, Controller of Washington Mutual Card Services (“WaMu”), which was subsequently purchased by J.P. Morgan. While at WaMu and J.P. Morgan, Mr. Sanford was responsible for accounting and financial reporting activities, and was a leader in the structuring of various securitization trust transactions. From 1992 to 2005, Mr. Sanford served in various financial management leadership positions at Providian Financial Services (“Providian”), including Controller. While Controller at Providian, Mr. Sanford was responsible for managing all financial reporting and accounting aspects of the business. Mr. Sanford holds a B.S. degree in Accounting and Finance from the University of California, Berkeley.

Lawrence W. Cheng has served as one of ~~the Company’s~~PMI’s directors since July 2006. Mr. Cheng has been a Managing Partner at Volition Capital since 2010. Prior to helping found Volition, he was a Partner at Fidelity Ventures, a venture capital firm, from 2007 until 2010, and a Principal from 2005 until 2007. From 2000 to 2005, Mr. Cheng was a senior associate at Battery Ventures and from 1998 to 2000, he was an associate of Bessemer Ventures. Mr. Cheng currently serves on the boards of several other privately held companies. Mr. Cheng holds a B.A. from Harvard College. ~~The Company~~PMI believes that Mr. Cheng’s financial and business expertise, including his diversified background of managing and directing start-up, internet based, software and technology-enabled service companies, give him the qualifications and skills to serve as a director.

Timothy C. Draper has served as one of ~~the Company’s~~PMI’s directors since June 2011. Mr. Draper founded Draper Fisher Jurvetson in 1985 and has been a Managing Director since its inception. Mr. Draper currently sits on the board of a number of privately held companies. Mr. Draper holds a B.S. in Electrical Engineering from Stanford University, and an MBA from Harvard Business School. ~~The Company~~PMI believes that Mr. Draper’s financial and business expertise, and his background of managing and directing innovative start-up companies give him the qualifications and skills to serve as a director.

Court Coursey has served as one of ~~the Company’s~~PMI’s directors since April 2010. Mr. Coursey has been the Managing Partner at TomorrowVentures, LLC since 2009. Immediately prior to joining TomorrowVentures, Mr. Coursey was a principal of Rundell, Coursey, & Company, which he co-founded in 1998, which helped incubate, develop and provide strategic planning services for high-growth companies. In 1996, he founded certifiedemail.com, an online service that allows people to track their emails. Prior to launching certifedemail.com, he founded TRUOC Aviation, a private aviation services business. ~~The Company~~PMI believes that Mr. Coursey’s financial and business expertise, as well as his general operational and management experience in start-up companies, give him the qualifications and skills to serve as a director.

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Jeff Jacobs has served as one of ~~the Company~~’sPMI’s directors since November 2011. Mr. Jacobs began his career as an entertainment lawyer in Chicago. He then co-founded the Harpo Entertainment Group, a film and television production company, and served as its President from 1984 until 2002. During the last five years Mr. Jacobs primary occupation and interests have been as a private investor and philanthropist. Mr. Jacobs holds a B.A. from Bradley University, and a J.D. from the Loyola University Chicago School of Law. ~~The Company~~PMI believes that Mr. Jacob’s business expertise, as well as his general management experience give him the qualifications and skills to serve as a director.

~~Table of Contents~~

Christian A. Larsen co-founded ~~the Company~~PMI and served as its Chief Executive Officer and President until March 15, 2012, and has been one of its directors since inception. Prior to joining ~~the Company,~~PMI, Mr. Larsen co-founded E-LOAN, Inc. in 1996, and served as one of its directors from 1996 until its acquisition in October 2005, and as its Chairman from March 2001 until October 2005. From 1999 to February 2005, Mr. Larsen served as Chief Executive Officer of E-LOAN, and from 1996 to 1998 and from January 2004 to June 2004, Mr. Larsen served as President of E-LOAN. From 1992 to 1996, Mr. Larsen was the President of Palo Alto Funding Group, a mortgage brokerage he co-founded in 1992 and E-LOAN’s predecessor company. Prior to attending business school, Mr. Larsen held positions at Chevron Corporation and NASA Ames Research Center. Mr. Larsen holds an M.B.A. from Stanford University and a B.S. from San Francisco State University. ~~The Company~~PMI believes that Mr. Larsen’s financial and business expertise, including his diversified background of managing and directing public and start-up companies, his experience with financial services companies and lending companies, as well as his general operational and management experience, give him the qualifications and skills to serve as a director.

Eric Schwartz has served as one of ~~the Company’s~~PMI’s directors since March 2012. Mr. Schwartz was formerly co-head of asset management at Goldman Sachs. During his 23-year career at Goldman Sachs from 1984 through 2007, Mr. Schwartz held multiple leadership positions at the company, including serving as a partner in the Equity Capital Markets unit of the Investment Banking Division, and serving as co-head of the Global Equities and Investment Management Divisions. He joined Goldman Sach’s Management Committee in 2001 and was named co-head of the Partnership Committee in 2005. Since his retirement from Goldman Sachs in 2007, he operates a private company to manage his personal investments. He currently serves as Chairman of Jefferson National, an insurance company that principally provides low-cost variable annuities to US consumers; as Chairman of Gold Bullion International, a technology-enabled precious metals dealer based in the U.S.; and as a board member at Indostar Capital, a finance company based in India. Mr. Schwartz graduated with a B.S.E (summa cum laude) and M.B.A from the University of Pennsylvania. ~~The Company~~PMI believes that Mr. Schwartz’s experience with large institutional investment companies, his financial expertise and strong background in managing and leading a multinational financial company, give him the qualifications and skills to serve as a director.

David Silverman has served as one of ~~the Company’s~~PMI’s directors since March 2012. Mr. Silverman has been a managing partner at Crosslink Capital, a venture capital firm, since July 2011. Prior to joining Crosslink Capital, Mr. Silverman was the managing director at Piper Jaffray from July 2009 to July 2011 and a partner at 3i Ventures from June 2000 to July 2008. Mr. Silverman holds B.A. from Dartmouth College and a J.D from Stanford University. ~~The Company~~PMI believes that Mr. Silverman’s experience as a venture capital investor with a focus on financial technologies and his overall management experience, give him the qualifications and skills to serve as a director.

Nigel W. Morris has served as one of ~~the Company’s~~PMI’s directors since December 2009. Mr. Morris is the managing partner of QED Investors, an investment firm he founded in 2008. He was also the co-founder of Capital One Financial Services, where he served as President and Chief Operating Officer and Vice Chairman from 1994 until his retirement in 2004. Mr. Morris has served on the board of TransUnion Corp., a provider of credit information and credit information management services, since February 2011. Mr. Morris also serves on the boards of other privately held companies. Mr. Morris has a BSC in Psychology from East London University and a MBA with distinction from London Business School, where he is also a Fellow. ~~The Company~~PMI believes that Mr. Morris’s financial and business expertise, including his diversified background of managing and directing public companies, his extensive experience in the credit and financial services industry give him the qualifications and skills to serve as a director.

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Director Attributes

~~The Company’s~~PMI’s goal is to assemble a board of directors that operates cohesively and works with management in a constructive way. ~~The Company~~PMI believes that its directors possess valuable experience and the knowledge necessary to guide its business. Its current board of directors consists of individuals with proven records of success in their chosen professions. They all have the highest integrity and a keen intellect. They are collegial yet independent in their thinking, and are committed to the hard work necessary to be informed about the lending industry, ~~the Company,~~PMI, and its key constituents, including borrower members, lender members, stockholders and management.

~~Table of Contents~~

Director Compensation

As reflected in the table below, ~~the Company~~PMI occasionally grants options to its directors for their service on the ~~Board.~~Board but does not otherwise compensate directors for their service on the board.

Name	Fees earned or paid in cash ($)	Stock awards ($)	Option awards ($)	Non-equity incentive plan compensation ($)	Nonqualified deferred compensation earnings ($)	All other compensation ($)	Total ($)	Fees earned or paid in cash ($)		Stock awards ($)		Option awards ($)		Non-equity incentive plan compensation ($)		Nonqualified deferred compensation earnings ($)		All other compensation ($)		Total ($)
James W. Breyer(1)	-	-	-	-	-	-			-		-		-		-		-		-		-
Lawrence W. Cheng	-	-	-	-	-	-			-		-		-		-		-		-		-
Jerome Contro	-	-	-	-	-	-			-		-		-		-		-		-		-
Court Coursey	-	-	-	-	-	-			-		-		-		-		-		-		-
Timothy C. Draper	-	-	-	-	-	-			-		-		-		-		-		-		-
Nigel W. Morris	-	-	-	-	-	-			-		-		-		-		-		-		-
Jeffrey Jacobs	-	-	37,383.38	-	-	-	37,383.38		-		-		37,383.38		-		-		-		37,383.38

~~Delaware~~ Prosper Funding LLC (Exact name of registrant as specified in its charter)	~~6199~~	~~73-1733867~~ Prosper Marketplace, Inc. (Exact name of registrant as specified in its charter)

45-4526070 (I.R.S. Employer Identification Number)		73-1733867 (I.R.S. Employer Identification Number)

Delaware (State or other jurisdiction of incorporation or organization)
6199 (Primary Standard Industrial Classification Code ~~Number~~			~~(I.R.S. Employer Identification~~ Number)

Large ~~accelerated filer~~	o	Accelerated ~~filer~~	o

~~Non-accelerated filer~~	Filer o ~~(Do not check if a smaller reporting company)~~	Accelerated Filer o		Non-accelerated Filer o	Smaller ~~reporting company~~	TReporting Company ý

Title of Securities being Registered	Proposed Maximum Aggregate Offering Price	Amount of Registration Fee(1)


Title of Each Class of Securities to be Registered			Amount to be Registered	Proposed Maximum Aggregate Offering Price per Unit	Proposed Maximum Aggregate Offering Price	Amount of Registration Fee
Borrower Payment Dependent Notes	$300,000,000	$1	$500,000,000	100%	$500,000,000(1)	$57,300
PMI Management Contracts(2)			N/A(2)

PART I

ABOUT THIS PROSPECTUS	iiiv

WHERE YOU CAN FIND MORE INFORMATION	~~iii~~v

PROSPECTUS SUMMARY	1

THE OFFERING	4

~~QUESTIONS AND ANSWERS~~	9

FORWARD – LOOKING STATEMENTS	2010

RISK FACTORS	2212

RISKS RELATED TO BORROWER DEFAULT	12

RISKS INHERENT IN INVESTING IN THE NOTES	19

RISKS RELATED TO PROSPER FUNDING AND PMI, THE PLATFORM AND PROSPER FUNDING AND PMI’S ABILITY TO SERVICE THE NOTES	23

RISKS RELATING TO COMPLIANCE AND REGULATION	34

USE OF PROCEEDS	2339

PLAN OF DISTRIBUTION	2339

FINANCIAL SUITABILITY REQUIREMENTS	2339

ABOUT ~~PROSPER~~THE PLATFORM	2540

SUMMARY OF ~~MATERIAL AGREEMENTS~~INDENTURE, FORM OF NOTES AND ADMINISTRATION AGREEMENT	2680

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS	3693

INFORMATION ABOUT PROSPER FUNDING LLC	100

INFORMATION ABOUT PROSPER MARKETPLACE, INC.	43109

GOVERNMENT REGULATION	43114

MANAGEMENT	44117

EXECUTIVE COMPENSATION	48126

TRANSACTIONS WITH RELATED PARTIES	49126

PRINCIPAL SECURITYHOLDERS	50130

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	55135

LEGAL MATTERS	55144

EXPERTS	55144

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND ~~FINANCIAL STATEMENTS~~BALANCE SHEET	55II-2

PART II

Item 13. Other Expenses of Issuance and Distribution	II-8

Item 14. Indemnification of Directors and Officers	II-8

Item 15. Recent Sale of Unregistered Securities	II-11

Item 16. Exhibits and Financial Statements Schedules	II-13

Item 17. Undertakings	II-13

SIGNATURES	S-1

EXHIBIT INDEX	E-1

Participant	Series E		Series F

James W. Breyer Trust dated March 25, 2005		658,829

Accel Partners		4,283,622

Agilus Ventures		1,624,915

Meritech Capital Partners		2,031,144

DAG Ventures		2,031,144

Draper Fisher Jurvetson Fund		7,109,005

Crosslink Capital		4,265,403

IDG Capital Partners			6,997,538

Eric & Erica Schwartz Investments LLC			1,999,201

	Total Beneficial Ownership
Name of Beneficial Owner	Number of Shares		Beneficial Ownership Percentage
Name of Beneficial Owner	Number of Shares		Beneficial Ownership Percentage
	2012		2012
Officer and Directors
Dawn Lepore (1)		224,063		7.18	%

Lawrence W. Cheng (2)		7,160,528		71.19	%

David Silverman (3)		4,265,402		59.55	%

Court Coursey (4)		2,234,256		43.53	%

Timothy C. Draper (5)		7,109,006		71.04	%

Jeff Jacobs (6)		25,000		0.86	%

Nigel W. Morris (7)		2,450,169		45.81	%

Christian A. Larsen (8)		3,760,826		80.73	%

Kirk T. Inglis (9)		614,841		17.50	%

Jim Catlin (10)		524,262		15.32	%

Eric Schwartz (11)		2,569,917		47.00	%

All directors and named executive officers as a group (12)*		30,938,270		97.26	%

5% Shareholders
Accel Partners (13)		18,404,545		86.40	%

Agilus Ventures (14)		7,160,528		71.19	%

Benchmark Capital Partners (15)		3,807,720		56.78	%

Crosslink Capital (16)		4,265,402		59.55	%

DAG Ventures (17)		4,420,902		60.41	%

Draper Fisher Jurvetson (18)		7,109,006		71.04	%

IDG Capital Partners (19)		18,404,545		86.40	%

Meritech Capital Partners (20)		4,420,902		60.41	%

	Predecessor			Pro Forma Adjustments				Pro Forma PMI			Pro Forma PFL
ASSETS
Cash and cash equivalents	$	9,216,133		$	(299,828	)	A	$	8,916,305		$	299,828
Restricted cash		4,364,102			(4,233,807	)	B		130,295			4,233,807
Short term investments		9,997,420			-				9,997,420			-
Receivables		12,941			-				12,941			-
Loans held for investment at fair value		137,314			(137,314	)	C		-			137,314
Borrower Loans Receivable at fair value		75,762,894			(75,762,894	)	D		-			75,762,894
Property and equipment, net		1,337,572			(597,286	)	E		740,286			597,286
Prepaid and other assets		234,539			-				234,539			-
Investment in wholly owned subsidiary		-			3,024,638		F		3,024,638			-
Total assets	$	101,062,915		$	(78,006,491	)		$	23,056,422		$	81,031,129

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	1,123,732		$	(148,467	)	G	$	975,265		$	148,467
Accrued liabilities		2,027,313			(749,965	)	H		1,277,348			749,965
Borrower Payment Dependent Notes at fair value		76,159,501			(76,159,501	)	I		-			76,159,501
Repurchase obligation		22,168			(22,168	)	J		-			22,168
Total liabilities		79,332,714			(77,080,100	)			2,252,613			77,080,100



Stockholders' Equity
Convertible preferred stock		71,958			-				71,958			-
Common stock ($0.001 par value; 81,414,566 shares authorized; shares 2,872,859 and 4,478,667 shares issued and outstanding as of December 31, 2011 and December 31, 2010, respectively)		4,696			-				4,696			-
Additional paid-in capital		82,733,624							82,733,624			-
Members' Equity					3,024,638		K		-			3,024,638
Less Treasury Stock		(291,046	)		-				(291,046	)		-
Retained earnings (accumulated deficit)		(60,789,032	)		(926,391	)	L		(61,715,423	)		926,391
Total stockholders' equity		21,730,201			2,098,247				20,803,809			3,951,029

Total liabilities and stockholders' equity	$	101,062,915		$	(74,981,853	)		$	23,056,422		$	81,031,129

	12 months ended December 31, 2011													6 months ended June 30, 2012
	Historical			Adjustments				Pro Forma PMI			Pro Forma PFL			Historical			Adjustments				Pro Forma PMI			Pro Forma PFL
Revenues
Origination fees	$	2,836,917			-			$	2,836,917		$	-		$	3,139,346			-			$	3,139,346		$	-
Loan servicing fees		23,389			-				23,389			-			394			-				394			-
Interest Income		9,691,736			(9,691,736	)	A		-			9,691,736			10,410,278			(10,410,278	)	A		-			10,410,278
Interest Expense		(9,195,722	)		9,195,722		B		-			(9,195,722	)		(9,902,252	)		9,902,252		B		-			(9,902,252	)
Rebates and promotions		(1,169,278	)						(1,169,278	)		-			(549,386	)		-				(549,386	)		-
Administration agreement fee revenue		-			3,931,506		C		1,094,589			2,836,917			-			4,012,045		C		1,740,310			2,271,735
Revenues		2,187,042			3,435,492				2,785,617			3,332,931			3,098,380			3,504,019				4,330,664			2,779,761

Cost of revenues
Cost of services		(1,244,240	)		872,636		D		(371,604	)		(872,636	)		(680,895	)		426,021		D		(254,874	)		(426,021	)
Reversal of (Provision for) loan and Note repurchases		32,340			(32,340	)	E		-			32,340			(11,537	)		11,537		E		-			(11,537	)
Net revenues		975,142			4,275,788				2,414,013			2,492,635			2,405,948			3,941,577				4,075,790			2,342,203

Operating expenses
Compensation and benefits		6,824,295			-				6,824,295			-			4,806,640			-				4,806,640			-
Marketing and advertising		2,017,981			-				2,017,981			-			2,401,543			-				2,401,543			-
Depreciation and amortization		482,457			-				482,457			-			326,200			-				326,200			-
Administration agreement fees		-			3,931,506		F		2,836,917			1,094,589			-			4,012,045		F		2,271,735			1,740,310

General and administrative
Professional services		2,149,749			(584,607	)	G		1,565,142			584,607			1,632,632			(360,511	)	G		1,272,121			360,511
Facilities and maintenance		730,606			-				730,606			-			624,999			-				624,999			-
Other		1,061,218			(167,612	)	H		893,606			167,612			850,026			(161,437	)	H		688,589			161,437
Total expenses		13,266,306			3,179,287				15,351,004			1,846,808			10,642,040			3,490,097				12,391,827			2,262,258
Loss before other income and expenses		(12,291,164	)		1,096,501				(12,936,991	)		645,827			(8,236,092	)		451,480				(8,316,037	)		79,945

Other income and expenses
Interest income		5,657			-				5,657			-			4,282			-				4,282			-
Change in fair value on Borrower Loans, Loans Held for Investment and Payment Dependent Notes, net		280,564			280,564		I		-			280,564			519,730			519,730		I		-			519,730
Insurance recoveries		1,999,999			-				1,999,999			-			-			-				-			-
Loss on impairment of fixed assets		(124,387	)		-				(124,387	)		-			-			-				-			-
Other Income		108,282			-				108,282			-			90,610			-				90,610			-
Total other income and expenses, net		2,270,115			280,564				1,989,551			280,564			614,622			519,730				94,892			519,730

Loss before income taxes		(10,021,049	)		1,377,065				(10,947,440	)		926,391			(7,621,470	)		971,210				(8,221,145	)		599,675
Provision for income taxes		-			-				-			-			-			-				-			-
Net income (loss)	$	(10,021,049	)	$	1,377,065			$	(10,947,440	)	$	926,391		$	(7,621,470	)	$	971,210			$	(8,221,145	)	$	599,675

Report of Independent Registered Public Accounting Firm	F-2
Balance Sheet as of June 30, 2012 (unaudited) and March 1, 2012 (audited)	F-3
Statement of Operations (unaudited)	F-4
Statement of Cash Flows (unaudited)	F-5
Notes to Financial Statements	F-6

	June 30, 2012 (Unaudited)			March 1, 2012 (Audited)
ASSETS
Cash and cash equivalents	$	5,000		$	100
Total assets		5,000			100

LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities		-			-

Stockholders' Equity
Members Equity		145,834			100
Accumulated deficit		(140,834	)		-
Total stockholders' equity		5,000			-

Total liabilities and stockholders' equity	$	5,000		$	100

	Period From February 17, 2012 (Inception) to June 30, 2012
Operating expenses
Professional services	$	81,720
Other		59,114
Total expenses		140,834

Net loss	$	(140,834	)

	Period From February 17, 2012 (Inception) to June 30, 2012
Cash flows from operating activities:
Net loss	$	(140,834	)
Net cash used in operating activities		(140,834	)

Cash flows from financing activities:
Members' Equity capital infusion from Parent		145,834
Net cash provided by financing activities		145,834

Net increase in cash and cash equivalents		5,000
Cash and cash equivalents at beginning of the period		–
Cash and cash equivalents at end of the period	$	5,000

Securities and Exchange Commission registration fee	$	0	$	57,300
Accountants fees and expenses		4,000
Accountants’ fees and expenses				15,000
Legal fees and expenses		10,000		500,000
Blue Sky fees and expenses		0		60,000
Miscellaneous		3,000		-
Total Expenses	$	17,000	$	632,300

	PROSPER FUNDING LLC.

	By:	/s/ Joseph L. Toms
		Joseph L. Toms
		President

Name	Title	Date

/s/ Joseph L. Toms	President (principal executive officer);	October 1, 2012
Joseph L. Toms

/s/ Kirk T. Inglis	Vice President and Treasurer (principal financial and accounting officer); Director	October 1, 2012
Kirk T. Inglis

/s/ Sachin D. Adarkar	Secretary; Director	October 1, 2012
Sachin D. Adarkar

*	Director	October 1, 2012
Bernard J. Angelo

*	Director	October 1, 2012
Kevin P. Burns

* By: Kirk T. Inglis
Kirk T. Inglis
Attorney-in-Fact

	PROSPER MARKETPLACE, INC.

	By:	/s/ Dawn Lepore
		Dawn Lepore
		President and Chief Executive Officer ~~(Principal Executive Officer)~~

*		~~November 19, 2012~~
~~Jeff Jacobs~~	~~Director~~

*	Director	October 1, 2012
Jeff Jacobs		~~November 19, 2012~~
~~Nigel W. Morris~~	~~Director~~

* /s/ Nigel W. Morris	Director	October 1, 2012
Nigel W. Morris		~~November 19, 2012~~
~~Eric Schwartz~~	~~Director~~

*	Director	October 1, 2012
Eric Schwartz		~~November 19, 2012~~
~~David Silverman~~	~~Director~~

* By: Kirk T. Inglis /s/ David Silverman	Director	October 1, 2012
~~Kirk T. Inglis~~
~~Attorney-in-Fact~~David Silverman

Exhibit Number		Description

2.1		Asset Transfer Agreement, dated _________________, 2012, between Prosper Marketplace, Inc. and Prosper Funding LLC

3.1		Limited Liability Company Agreement of Prosper Funding LLC, dated March 1, 2012 (3)

3.2		Amended and Restated Certificate of Incorporation of ~~the Registrant~~Prosper Marketplace, Inc. (incorporated by reference to Exhibit 3.1 of ~~the Company’s~~PMI’s Annual Report on Form 10-K, filed March 30, 2012)

~~3.2~~3.3		Prosper Funding LLC Certificate of Formation (3)

3.4		Bylaws of ~~the Registrant,~~PMI, dated March 22, 2005 (incorporated by reference to Exhibit 3.2 of ~~the Company’s~~PMI’s Registration Statement on Form S-1, filed October 30, 2007)

4.1		Form of Prosper Funding Borrower Payment Dependent Note (included as Exhibit A in Exhibit ~~4.2)~~4.3)

4.2		Form of PMI Borrower Payment Dependent Note (included as Exhibit A in Exhibit 4.4)

4.3		Form of Indenture, dated ____________, 2012, between Prosper Funding LLC and Wells Fargo Bank, National Association

4.4		Indenture, dated June 15, 2009, between Prosper Marketplace, Inc. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.2 of ~~the Company’s~~PMI’s Registration Statement on Form S-1/A, filed June 26, 2009)

5.1		Opinion of Covington & Burling LLP (1)

8.1		Opinion of Covington & Burling LLP (1)

10.1		Form of Prosper Funding Borrower Registration Agreement

10.2		Form of Prosper Funding Lender Registration Agreement

10.3		Form of PMI Borrower Registration Agreement (incorporated by reference to Exhibit 10.1 of PMI’s Annual Report on Form 10-K, filed March 30, 2012)

10.4		Form of PMI Lender Registration Agreement (Note Commitment, Purchase and Sale Agreement) (incorporated by reference to Exhibit 10.2 of PMI’s Quarterly Report on Form 10-Q, filed November 14, 2011)

~~10.3~~ 10.5		Amended and Restated Processing Agreement, dated ____________, 2012, between CSC Logic, Prosper Marketplace, Inc. and Prosper Funding LLC (2)

10.6		CSC Logic Processing Agreement, dated January 1, 2009, between CSC Logic, Inc. and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.8 of PMI’s Post-Effective Amendment No. 7, Registration No. 333-147019, filed April 6, 2011)

10.7		Administration Agreement between Prosper Funding LLC and Prosper Marketplace, Inc., dated ___________, 2012

10.8		Services and Indemnity Agreement, dated March 1, 2012, between Global Securitization Services, LLC, Kevin Burns, Bernard Angelo, Prosper Marketplace, Inc.

10.9		Second Amended and Restated Loan Sale Agreement, dated ______________, 2012, between WebBank, Prosper Marketplace, Inc and Prosper Funding LLC (1)

10.10		Second Amended and Restated Loan Account Program Agreement between WebBank and Prosper Marketplace, Inc. (1)

10.11		Amended and Restated Loan Sale Agreement, dated September 14, 2010, between WebBank and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.4 of PMI’s Quarterly Report on Form 10-Q, filed November 12, 2010)

10.12		Amended and Restated Loan Account Program Agreement, dated September 14, 2010, between WebBank and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.3 of ~~the Company’s~~PMI’s Quarterly Report on Form 10-Q, filed November 12, 2010) ~~(1)~~

~~10.4~~ 10.13		Amended and Restated ~~Loan Sale~~Hosting Services Agreement, dated ~~September 14, 2010,~~___________, 2012, between ~~WebBank and~~FOLIOfn Investments, Inc., Prosper Marketplace, Inc. ~~(incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q, filed November 12, 2010) (1)~~and Prosper Funding LLC

~~10.5~~ 10.14		Amended and Restated Services Agreement, dated ______________, 2012, between FOLIOfn Investments, Inc., Prosper Marketplace, Inc. and Prosper Funding LLC

10.15		Amended and Restated License Agreement, dated ________________, 2012, between FOLIOfn Investments, Inc., Prosper Marketplace, Inc. and Prosper Funding LLC

10.16		Hosting Services Agreement, dated March 3, 2009, between FOLIOfn Investments, Inc. and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.5 of ~~the Company’s~~PMI’s Registration Statement on Form S-1/A, filed April 14, 2009)

~~10.6~~10.17		Prosper-Folio Services Agreement, dated March 3, 2009, between FOLIOfn Investments, Inc. and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.6 of ~~the Company’s~~PMI’s Registration Statement on Form S-1/A, filed April 14, 2009)

~~10.7~~10.18		Prosper-Folio Software License Agreement, dated March 3, 2009, between FOLIOfn Investments, Inc. and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.7 of ~~the Company’s~~PMI’s Registration Statement on Form S-1/A, filed April 14, 2009)

~~10.8~~		CSC Logic Processing Agreement, dated January 1, 2009, between CSC Logic, Inc. and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.8 of the Company’s Post Effective Amendment No. 7, Registration No. 333-147019, filed April 6, 2011) (1)

~~10.9~~		~~Indemnification Agreement, dated November 2, 2011, between Prosper Marketplace, Inc. and Jeffrey Jacobs~~

~~10.10~~		~~Schedule of Officer and Director Indemnification Agreements (included as Exhibit A in Exhibit 10.9)~~

~~10.11~~		Services and Indemnity Agreement, dated March 1, 2012, between Global Securitization Services, LLC, Kevin Burns, Bernard Angelo and Prosper Marketplace, Inc. (incorporated by reference to Exhibit 10.8 from the Registration Statement on Form S-1 filed on October 1, 2012, SEC file number 333-179941)

23.1		Consent of OUM & Co. LLP, an independent registered public accounting firm

23.2		Consent of Covington & Burling LLP (included in Exhibits 5.1 and 8.1)


24.1		Power of Attorney ~~(included in~~(see page ~~S-2)~~S-1 of this prospectus)

25.1		Form T-1 Statement of Eligibility under Trust Indenture Act of 1939 of Trustee under the Indenture ~~(2)~~(3)

(1)		To be filed subsequently.
(2)		Certain portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 406 of the Securities Act.
~~(2)~~(3)		Previously filed