Lending Club’s woes grow as DOJ launches probe of operations

The hits keep on coming for Lending Club.

On Tuesday, the San Francisco online loan marketplace’s shares tumbled another 11 percent in the wake of a filing with the Securities and Exchange Commission in which Lending Club said it was under investigation by the U.S. Department of Justice and also said it may have to resort to new means to secure funding for its business.

Lending Club said late Monday that it received a grand jury subpoena from the DOJ, and had also contacted the SEC and would “cooperate fully” with both organizations.

At issue is Lending Club’s business practices, which led to the unexpected resignation of Chief Executive Renaud Laplanche on May 9. Laplanche was forced out after an internal investigation found that $22 million in loans were sold in violation of Lending Club policies. The loans were sold to one investor, who then offered the loans to applicants with less-than-acceptable credit scores and qualifications.

Lending Club doesn’t work with any banks to facilitate loans, but instead acts like an online marketplace to link lenders with borrowers. By using new technologies, the company claims to be able to charge borrowers lesser rates on loans.

Additionally, Lending Club said that due to the recent upheaval in its business, the odds were strong that the company may need to use even more of its own money than at other times in order to purchase loans across its platform. Lending Club said that this, and other matters,”may have material adverse impacts on the Company’s business, financial condition, including its liquidity, results of operations and ability to sustain and grow loan volume.”

Lending Club last reported quarterly results on May 9, the day of Laplanche’s resignation. At that time, Lending  Club said that for its first quarter, it earned 5 cents a share on $152.3 million in revenue, compared with a profit of 2 cents a share on sales of $81.2 million a year ago. Wall Street analysts had expected the company to earn 5 cents a share on $148 million in revenue.

Lending Club’s shares fell to $3.54 following the disclosure of the DOJ investigation. Tuesday’s stock slide also came after Lending Club’s shares fell more than 50 percent last week.


Photo: Former Lending Club CEO Renaud Laplanche. (AP/Richard Drew)


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