Renaud Laplanche, the CEO of Lending Club, has resigned following a board investigation regarding allegations of improper practices surrounding a loan sale with an investor.
According to a news release on the subject, the investigation concerns whether Lending Club and some of its officers and/or directors have violated a specific section of the Securities Exchange Act after the company sold an investor $22 million worth of sub-prime loans that were linked to consumers with poor credit scores. This practice, reportedly, violated the instructions from that investor.
“A violation of the company’s business practices along with a lack of full disclosure during the review was unacceptable to the board,” President Scott Sanborn, who is taking over as acting CEO, said on a conference call with analysts.
Director Hans Morris will assume the newly created position of executive chairman.
“While the financial impact of this $22 million in loan sales was minor, a violation of the company’s business practices along with a lack of full disclosure during the review was unacceptable to the board. Accordingly, the board took swift and decisive action, and authorized additional remedial steps to rectify these issues,” noted Morris in a statement.
According to what’s been reported on the matter, the board’s investigation, which included outside legal experts, determined that there were employees at Lending Club who allowed this sale, even though they knew the sale did not meet the terms of what the investor expected. Furthermore, there are reports that the date on the loans was tampered with to ensure they were within compliance requirements.
While it hasn’t been officially reported what role Laplanche had in this sale, Lending Club did say that ““certain personnel” had knowledge of the sale that happened in March and April. The sale aside, the internal review also found issues “involving a failure to inform the board’s Risk Committee of personal interests held in a third party fund while the company was contemplating an investment in the same fund.” Three senior managers have either been terminated or given the ability to resign as a result of the incident.
The rapid-fire leadership comes on as Lending Club is posting first quarter operating revenues of $151.3 million, an increase of 87 percent year-over-year.
Net income was $4.1 million, or 1 cent a share, compared with a loss of $6.4 million, or 2 cents, the year before.
As of yet, Lending Club has provided no guidance going forward, deeming it “prudent” to hold off until the weaknesses in internal controls are better addressed.
The firm, while handling internal problems, is also facing external pressures that are becoming increasingly endemic to marketplace lenders as capital markets are tightening. Prosper — in the wake of a weak earnings picture — has announced layoffs of over a quarter of their workforce.
Upon news of this investigation and resignation of Laplanche, Lending Club’s shares dropped more than 26 percent in pre-market trading today.
PYMNTS will have more on this story as it develops.