Lending Club says improper loans extended to ex-CEO's family

Lending Club named a new CEO in a bid to restore confidence in the troubled peer-to-peer banking alternative under investigation for improper loan practices — activities it now says extended to the family of founder and former CEO Renaud Laplanche.

The San Francisco-based company will also cut 179 jobs. Shares, trampled in the wake of the company's disclosure in early May it had sold $22 million in loans to an institutional investor that didn't meet the buyer's stated criteria, rose in early trading Tuesday.

Scott Sanborn, who has been with Lending Club for six years, had been acting CEO and, previously, Lending Club's chief operations officer. 

Sanborn's naming to the post Tuesday comes on the day of Lending Club's annual shareholder meeting, which had been postponed from earlier in the month. The company took that action after the Justice Department began an investigation into an improper loan sale.

Lending Club's internal probe into the loan led to the resignation of Laplanche. On Tuesday, the company said its internal probe found 32 loans, amounting to about $722,800, made in December 2009, issued to Laplanche and three family members that were made to help increase reported loan volume.

Lower loan volumes in the April-to-June time period led to the staff reductions, which amount to about 12% of its employees, the company says. Lending Club has made several changes to improve fund governance and is offering incentives to attract investors, it says. "We are working closely with investors to rebuild confidence and are encouraged to see them returning to the platform," Sanborn said in a statement. 

Lending Club (LC) shares were up 7% in midday trading Tuesday to $4.61.

LendingClub's travails could cast long shadow on industry

Founded in 2007, Lending Club has handled nearly $19 billion in loans via its online peer-to-peer model, matching borrowers with loans financed by investors. Sanborn helped steer the company towards its 2014 IPO.

Before joining Lending Club, Sanborn was chief marketing and revenue officer at eHealth Insurance, president of RedEnvelope and senior vice president of marketing for the Home Shopping Network.​

 "Scott and the management team have demonstrated they can lead Lending Club through this turbulent time," said Hans Morris, who the company said is now chairman of the board of directors. He had served in the temporary role of executive chairman. "

The company forecast second quarter 2016 loan originations to be one-third lower than in the first quarter of the year. But BTIG Equity Research Managing Director and Financials Analyst Mark Palmer expects the company to rally. He reiterated a Buy recommendation and $9 target price.

"We believe the value proposition offered by LC’s core business – to generalize, taking consumers out of 19% APR credit cards and putting them into 12% term loans – remains very much intact," he said in a note to investors Tuesday.

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