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Lending Club CEO resigns after loan sales probe, shares plummet

Roger Yu
USA TODAY
Lending Club chairman and CEO Renaud Laplanche resigned after a company probe of loan sales. Here, he speaks at 2016 Tribeca Disruptive Innovation Awards.


Shares of Lending Club (LC), the online lending market operator, slid 34% Monday after founder, chairman and CEO Renaud Laplanche resigned following an internal probe that revealed that the sale of $22 million in loans violated the company's business practices.

Lending Club hired lawyers to help conduct the probe after it discovered “non-conforming sales” to an institutional investor of $22 million of near-prime loans — $15 million in March and $7 million in April. “The loans in question failed to conform to the investor's express instructions as to a non-credit and non-pricing element,” it said. “Certain personnel apparently were aware that the sale did not meet the investor's criteria.”

Laplanche also failed to inform the board that he held personal interests in a third-party fund while Lending Club was considering an investment in the same fund.

"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," said Hans Morris, a company board director who replaced Laplanche as chairman. "Accordingly, the board took swift and decisive action, and authorized additional remedial steps to rectify these issues."

Lending Club operates in an industry that is commonly referred to as "peer-to-peer" lending. Instead of coming primarily from bank deposits, the capital to invest in the loans comes directly from a range of sources including retail investors, high-net-worth individuals, banks and finance companies, insurance companies, hedge funds, foundations, pension plans and university endowments. As of the end of 2015 the company had facilitated about $16 billion in loans since the company first launched in 2007, according to a regulatory filing.

Learn more: Best personal loans

Lending Club said it will take steps "to resolve the material weaknesses in internal control over financial reporting" identified during the review. Three other senior managers involved in the loan sales were fired or resigned.

Scott Sanborn will continue in his role of president and will become acting CEO.  Lending Club also will file an extension request with the Securities and Exchange Commission to file its quarterly report.

The company also said its first quarter revenue rose 87% year-over-year to $151.3 million. Loan originations in the first quarter were $2.75 billion, compared to $1.64 billion a year ago. Net income totaled $4.1 million versus a net loss of $6.4 million in the same period last year.

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