LendingClub CEO fired for faulty loans


Renaud Laplanche was the face of the online lending industry, a telegenic French entrepreneur who claimed that the internet would revolutionize finance by allowing borrowers to connect directly with investors.

On Monday, Mr. Laplanche was removed from his post as CEO of the company he founded,

Loan Club Corp.

, after the board said it found problems with its lending practices and what it called the executive’s lack of disclosure regarding a personal investment.

The foreclosure amplified concerns about Mr. Laplanche’s business model, and the company’s shares fell 35%, losing nearly $ 950 million in market value.

LendingClub, by far the largest and most successful in a wave of online lenders that have flourished since the financial crisis, said a board review found the San Francisco-based company had sold to a $ 22 million investor in loans whose characteristics violated the investor’s express instructions. “The board found that some people at the company were aware that the loans did not meet the investor’s criteria and that the $ 3 million application date for those loans had been changed to make them compliant.

Mr. Laplanche discovered the initial forgeries and ordered an internal investigation, but the commission later determined that he had not given investigators a full account of what he knew, according to a person familiar with the case.

The investor who bought the loans was Jefferies LLC, according to people familiar with the matter. LendingClub subsequently bought back the loans at face value and sold them to another investor.

As part of the investigation, LendingClub also said it concluded that Mr. Laplanche did not fully disclose a personal interest he held in an external fund while the company was considering an investment in the same fund, according to the person. familiar with the situation. Mr. Laplanche submitted to the company’s risk management committee a proposal to invest in the fund, which bought LendingClub loans, without disclosing his own stake, the person said. The combination of issues with Mr. Laplanche led the board to ask for Mr. Laplanche’s resignation, the person said, and the executive gave it on Friday.

“A violation of the company’s business practices as well as a lack of full disclosure during the review was unacceptable to the board,” said Hans Morris, who took over as executive chairman, in a conference call with analysts.

LendingClub said three other senior executives were fired or resigned due to the incident. Mr. Laplanche could not be reached for comment.

Meanwhile, the Securities and Exchange Commission is reviewing LendingClub’s disclosures to investors after learning about them, people familiar with the matter said.

Online peer-to-peer lender LendingClub has raised $ 115 million in stocks and debt, giving it a valuation of $ 3.8 billion as it considers an IPO. Peter Renton, Co-Founder of Lenit Conference and CEO of Lend Academy, discusses MoneyBeat. Photo: Getty (Originally posted April 18, 2014)

The company’s investigation also revealed that former Morgan Stanley CEO John Mack, a member of the LendingClub board of directors, had invested in the fund alongside Mr. Laplanche, according to the person with knowledge of the matter, adding that there was a split within the company over whether Mr. Mack should have disclosed it. Mr Mack had informed the fund’s investment managers that he did not want his money invested in LendingClub loans, according to a person familiar with the matter. He remains on the board of directors of the LendingClub.

The loans behind the internal investigation comprise a tiny portion of LendingClub’s business, less than 1% of its quarterly volume, but the alleged actions go to the heart of the industry’s business model.

When large investors buy loan packages from an online lender, they may ask for certain specifications including the credit standing of the borrowers, the timing of the loans, and the attached interest rates.

Monday’s disclosure risks scaring other investors into buying the company’s loans.

“Our faith and confidence are shaken,” said analysts at Stifel Financial who demoted LendingClub shares to “hold” them “to buy” after Mr. Laplanche was ousted.

Mr. Laplanche, 45, founded LendingClub in 2006 after being unhappy with the high interest rates he was paying on his credit card. A competitive sailor, he previously worked at Oracle Corp., which had acquired a software company he co-founded.

The company primarily provides personal loans, up to $ 40,000, helping borrowers pay for everything from weddings to family vacations, though it has recently expanded into products aimed at small businesses.

The company, which made $ 2.8 billion in loans in the first quarter, does not lend money itself but collects fees to connect the parties to the transaction. It has attracted a number of high-level executives to its board, including former Treasury Secretary Larry Summers and Mr. Mack.

Online lenders such as LendingClub are relying on demand from outside investors to fund loans, an appetite that has recently weakened in the industry amid concerns over increasing defaults and market volatility. .

Analysts said company executives may have felt pressured to maintain lending volume in recent months to meet growth targets.

LendingClub shares soared when it went public in December 2014, giving it a market cap of $ 8.5 billion as investors who normally target tech flock in and give the stock a closer value. of a rapidly growing internet company than that of a bank. Mr. Laplanche encouraged this perception, arguing that the company should be compared more to its neighbors in Silicon Valley than to traditional lenders like banks or credit card companies.

But the company has been supported by the opinion of many investors and analysts that the future will not keep its promises. Its shares have fallen 58% this year and its market cap fell to $ 1.76 billion at the end of the session on Monday.

Other online lending platforms, such as Prosper Marketplace Inc., Avant Inc. and On Deck Capital Inc., have reported either a slowdown in demand for loans from investors or a decline in loan volume this year, as a result. investor skepticism about future returns. on online loans and better opportunities in other bonds. On Deck shares fell 4.1% on Monday.

LendingClub, which said it made a first quarter profit on Monday, said it will not offer financial advice and said its quarterly securities filing will be overdue as it will review its accounts.

Scott Sanborn, who is taking over as interim CEO, said quarterly results show LendingClub’s business was “strong despite the increasingly difficult investor environment.”

For the quarter ended March 31, LendingClub reported a profit of $ 4.1 million, or one penny per share, compared with a loss of $ 6.4 million, or 2 cents per share, a year earlier. Revenue nearly doubled from $ 81.2 million to $ 152.3 million.

Write to Peter Rudegeair at [email protected]

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