Lending Club on Monday said chief executive Renaud Laplanche had resigned after an internal review found the sale of $22 million in near-prime loans to an investor violated its business practices.
CFO Carrie Dolan said the problem with the sale was “a very isolated event” but the online lender’s shares fell more than 27% to $5.14 in trading Monday. The initial public offering in December 2014 was priced at $15.
According to Lending Club, the sale was made “in contravention of the investor’s express instructions as to a non-credit and non-pricing element.”
“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,” board member Hans Morris said in a news release. “Accordingly, the board took swift and decisive action, and authorized additional remedial steps to rectify these issues.”
Lending Club President Scott Sanborn will continue in that role and become acting CEO, while Morris has assumed the newly created role of executive chairman. The three senior managers involved in the loan sale either resigned or were fired.
According to The New York Times, Laplanche, who founded Lending Club, “was, in many ways, the face of the marketplace lending company” and his resignation “comes as lenders such as Lending Club … are struggling on Wall Street.”
“Such revelations are obviously ominous for Lending Club, which had already faced mounting investor worries (and inexorably sliding share prices) over increased regulation and competition in its market,” Inc. wrote.
Lending Club said its review determined that the sales of $15 million in loans in March and of $7 million in April were “nonconforming” and that “certain personnel apparently were aware that the sale did not meet the investor’s criteria.”
In early April, Lending Club repurchased these loans at par and subsequently resold them at par to another investor, but had to record them as secured borrowings and at fair value.
“The financial impact of this reporting is that the company was unable to recognize approximately $150,000 in revenue as of March 31, 2016, related to gains on sales of these loans,” Lending Club said.