SAN FRANCISCO — For online loan marketplace Lending Club, the woes just continue to grow.
Barely a week after company founder and Chief Executive Renaud Laplanche unexpectedly resigned, Lending Club has found itself subject to a Department of Justice investigation related to inappropriate loans made on Laplanche’s watch. Lending Club disclosed that on May 9 it received a grand jury subpoena from the DOJ, and that it may have to resort to new means to secure continued funding for its loan operations.
“It’s a big deal,” said Julianna Balicka, an analyst who covers Lending Club for Keefe, Bruyette & Woods. “Whenever you have something like this, it’s never a good thing because once they (investigators) start poking around, you never know what they might find.”
Lending Club made the disclosure public in a filing with the U.S. Securities and Exchange Commission late Monday. “The Company may be subject to litigation related to the events surrounding the resignation of Mr. Laplanche,” Lending Club said in its SEC filing. “Moreover, the company has received a subpoena from the DOJ, and has contacted the SEC, and intends to cooperate fully with them.”
At issue is Lending Club’s business practices, which led to Leplanche’s forced resignation and replacement on an interim basis by company President Scott Sanborn. Laplanche stepped down after an internal investigation found that Lending Club recently sold $22 million in loans in a method that violated company 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 lower rates on loans.
Additionally, Lending Club said that due to the recent upheaval in its business, the company may need to use even more of its own money to purchase loans across its platform. Lending Club said that this, and other matters, “may have material adverse impacts on the company’s business (and) financial condition,” including the results of its operations and ability to sustain and grow loan volume.
“They’re kind of stuck right now,” Balicka said. “Until we see its second and third quarter results,” we won’t really get an idea of how their business has been affected by everything that’s been going on.”
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.
Word of the DOJ looking into Lending Club’s business did nothing to ease concerns of the company’s investors. Lending Club’s shares fell 8.6 percent Tuesday to close at $3.60, and the stock price has plunged by almost 50 percent since Laplanche’s resignation.
Contact Rex Crum at 408-278-3415. Follow him at Twitter.com/rexcrum.
