- Mack said to have supplied temporary financing to Laplanche
- Morgan Stanley provided a subsequent mortgage, record shows
When the founder of LendingClub Corp. needed quick financing earlier this year, he turned to his fellow board member, former Morgan Stanley Chief Executive Officer John Mack, for an old-fashioned version of a peer-to-peer loan.
Renaud Laplanche got into a jam in January when the LendingClub shares that he pledged as collateral for an earlier loan plunged in value, according to a regulatory filing last week. As a stopgap measure, Laplanche borrowed money from Mack, according to a person familiar with the matter, who asked not to be identified discussing the transaction. Morgan Stanley later provided a mortgage to Laplanche, property records shows.
The loans add another dimension to the web of relationships between LendingClub, Mack and Morgan Stanley. The bank helped take Laplanche’s firm public in 2014 and, with Mack’s assistance, fueled its growth by lining up wealthy clients to buy its loans. The former Morgan Stanley chief was also a co-investor with Laplanche in a fund that figured into his ouster as LendingClub CEO this month.
Absent the outside help, Laplanche would’ve been forced to sell part of his stake in the company, potentially exacerbating LendingClub’s slide. The firm, which pioneered the peer-to-peer model of matching borrowers with investors online, was facing questions about whether it would be able to sustain its rapid growth.
‘Normal Market Terms’
“Renaud wouldn’t want to sell because of the message it would send, as well as his feeling it was worth more,” said John Donovan, a member of LendingClub’s founding team and the company’s former chief operating officer. “If anything, he doubled down,” said Donovan, who now works as chief strategy officer for CircleBack Lending in Boca Raton, Florida.
The May 16 filing says the temporary financing for Laplanche was secured by real estate and tied to one of the company’s directors, but didn’t identify the board member. Wesley McDade, a spokesman for Morgan Stanley, declined to comment on the transaction, as did representatives for Laplanche and San Francisco-based LendingClub.
“In the opinion of the company these lending arrangements were executed on normal market terms and, because the company had no financial involvement in them, did not require approval under the company’s policy on related-party transactions,” LendingClub said in the filing.
Laplanche, 45, founded LendingClub in 2006 as a sort of match.com of loans. The fintech firm uses proprietary algorithms to vet borrowers and pair them with people or financial institutions looking to lend.
The company said May 9 that Laplanche resigned after an internal review into a botched loan sale. LendingClub also found that he failed to disclose his interests in a fund that the company invested in. Mack, 71, held a personal stake in that fund, according to a regulatory filing in April; he remains on the board and hasn’t been accused of impropriety.
The review also found that Laplanche’s pledge of company stock to secure a personal loan wasn’t disclosed to the board until he was forced to refinance the debt, according to the May filing.
Public records show that Laplanche purchased a property in Ross, California, in November through an entity called the Brant Point Trust. He transferred 4.47 million LendingClub shares to the trust on Dec. 9, according to a regulatory filing in March.
‘Hedging and Pledging’
From Dec. 9 to Jan. 15, the stake pledged to the trust had lost almost half its value, falling to about $35 million. After Laplanche obtained the new financing, he offered to loan enough money to Chief Financial Officer Carrie Dolan so that she could refinance a personal loan backed by her shares, according to the May filing. She declined to comment through a company spokesman.
As trustee of the Brant Point Trust, Laplanche received a $6.51 million mortgage on the Ross property from Morgan Stanley Private Bank on Feb. 19, according to a copy of the deed of trust filed with California’s Marin County.
LendingClub disclosed in its annual proxy statement in April that the company has adopted a “hedging and pledging” policy that, among other things, prohibits officers and directors from pledging LendingClub securities as collateral for a loan or holding them in a margin account “without the prior approval of our general counsel and disclosure to the audit committee.”