LendingClub CEO Exits After Internal Review of Loan Salesby
Scott Sanborn named acting CEO as shares tumble in New York
Firm won't provide guidance as it resolves `material weakness'
LendingClub Corp. founder and Chief Executive Officer Renaud Laplanche and other senior managers departed after an internal review found abuses tied to the sale of a loan and a failure to disclose a personal interest in an investment fund.
“A key principle of the company is maintaining the highest levels of trust with borrowers, investors, regulators, stockholders and employees,” Hans Morris, the newly named executive chairman, said in a statement Monday. Scott Sanborn was named acting CEO, the company said.
The $22 million of near-prime loans were sold to Jefferies Group, which didn’t take a loss because LendingClub later repurchased them, according to a person familiar with the matter who asked not to be identified discussing a private transaction. The sale was found to be “in contravention of the investor’s express instructions,” San Francisco-based LendingClub said in the statement.
LendingClub, whose shares plunged after the announcement, is a pioneer in the business that matches borrowers with investors willing to finance their loans over the Internet. It has brought on Wall Street titans including former Morgan Stanley CEO John Mack and ex-U.S. Treasury Secretary Lawrence Summers to its board. Mary Meeker, a partner at Kleiner Perkins Caufield & Byers, is also a director.
“Lending Club is the bellwether in the industry when it comes to best practices, so investors are going to assume that this could be pervasive at second- and third-tier platforms, too,” Cormac Leech, a senior analyst who specializes in peer-to-peer lending at London-based Liberum Capital Ltd., said in an interview. “Investors won’t give the industry the benefit of the doubt.”
The company, whose stock slumped 36 percent this year through Friday, declined 25 percent to $5.34 at 9:06 a.m. in New York. LendingClub said it won’t be providing guidance as it seeks to resolve “material weaknesses” in internal controls.
“These remediation steps included the termination or resignation of three senior managers involved in the sales of the $22 million of near-prime loans,” LendingClub said. It began a review that also found “personal interests held in a third-party fund while the company was contemplating an investment in the same fund.”
By resigning, Laplanche had to give up unvested stock options worth about $7.83 million, based on Friday’s closing price in New York.
Laplanche, 45, didn’t immediately respond to calls and e-mails seeking comment.
LendingClub and its competitors have faced risks from lawsuits and tightened scrutiny from regulators in Washington. The firm went public in 2014, leading a revolution of financial-technology firms that investors hoped would modernize lending, as large banking rivals faced regulatory pressures after the 2008 financial crisis.
LendingClub also reported first-quarter results on Monday. The company posted net income of $4.1 million, or 1 cent a share, compared with a loss of $6.4 million, or two cents, a year earlier. The company had previously said that results would be released after the close of regular trading Monday.