NEW YORK, N.Y. – The chairman and CEO of the online lending company LendingClub stepped down after an internal review determined that the company’s business practices were violated with the sale of $22 million in loans to people with sketchy credit scores to a single investor.
The sudden departure of Renaud Laplanche, along with the firing or resignation of three senior managers involved in the sale, sent shares of the company plunging almost 35 per cent on Monday.
It was not immediately clear what role Laplanche played in the sale, but the company said that the sale of loans held by customers with low credit scores “failed to conform to the investor’s express instructions.”
The review of that sale was initiated after it was found that the dates on loans worth $3 million had been changed to match the investor’s criteria.
President Scott Sanborn will now serve as acting CEO, the company said, while director Hans Morris assumed the newly created role of executive chairman.
LendingClub and its smaller rivals — companies like Prosper, Avant and SoFi — grew out of the aftermath of the financial crisis. These online lending companies match borrowers, either individuals or businesses, with lenders, who can be investors or individuals.
The companies attract borrowers with quick approval of loans and competitive interest rates while investors find the loans to be an alternative form of investing that gave attractive returns.
But the business model has come under pressure as investors have found some of the loans to be riskier than originally anticipated and have looked for more attractive investments elsewhere.
The amount of loans in question is small relative to the billions in loans LendingClub does annually.
But the issue at hand strikes at the heart of LendingClub’s business model – where investors look to LendingClub to find and place investments in loans that match the investors’ criteria.
“We put a lot of faith in the team’s ability to execute and build trust with lenders and consumers,” wrote analyst Scott Devitt, of Stifel Nicolaus & Co., in a note as he downgraded his outlook on the company. “Our faith and trust is shaken by the set of events announced this morning as could be the case with the company’s constituents.
LendingClub also disclosed another unrelated problem, where the company uncovered a situation where the board of directors was not informed that a fund the company was considering an investment in had a personal connection to someone at the company.
LendingClub’s market capitalization neared $9 billion shortly after its initial public offering in late 2014. The value of the company in the past 12 months, however, has dropped by almost 70 per cent.
Shares of LendingClub Corp. tumbled $2.48, or 34.9 per cent, to finish at $4.62. Its shares are down more than 71 per cent over the past year.