Lending Club’s troubles don’t appear to be going away anytime soon.
The company was hit with a federal lawsuit from shareholders late on Monday (May 16) in San Francisco that claims that the online lender inflated its share price by not being transparent about the company’s issues with managing itself.
This comes just after CEO Renaud Laplanche resigned following a probe surrounding allegations of improper practices in regards to a loan sale with an investor. The complaint, filed by plaintiff Steeve Evellard, suggested that Lending Club misled its shareholders into believing that the company had a system in place to prevent such practices from happening. The complaint also suggested that Lending Club was not being transparent to its shareholders and customers.
When details began to surface, Lending Club’s shares took a massive dip, which included a drop of 51 percent last week (billions of dollars in market value). Lending Club also revealed earlier this week that it received a subpoena from the U.S. Department of Justice regarding a federal probe into its practices.
The investigation against Lending Club concerns whether the firm 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 subprime loans that were linked to consumers with poor credit scores. This practice, reportedly, violated the instructions from that investor.
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.