Lending Club shares are down more than 25% — shaving off hundreds of millions of dollars off the company’s roughly $2.5 billion market cap — after it announced its CEO would resign following an internal review of $22 million in near-prime loan sales to a single investor.
Renaud Laplanche will leave the company after a review of a loan sale that didn’t meet the investor’s instructions. The move happens at a time when questions are starting to arise around the peer-to-peer lending space as a whole. In March, the consumer financial protection bureau said it would be accepting complains from consumers encountering problems with loans from online marketplace lenders, for example.
“Lending Club conducted a review, under the supervision of a sub-committee of the board of directors and with the assistance of independent outside counsel and other advisors, regarding non-conforming sales to a single, accredited institutional investor of $22 million of near-prime loans ($15 million in March and $7 million in April),” the company said in a statement. “The loans in question failed to conform to the investor’s express instructions as to a non-credit and non-pricing element. Certain personnel apparently were aware that the sale did not meet the investor’s criteria.”
The announcement came in conjunction with Lending Club’s earnings report, in which the company met analyst expectations for earnings of 5 cents per share and $148 million in revenue. Lending Club reported earnings of 5 cents per share and revenue of $151.3 million.
“A key principle of the Company is maintaining the highest levels of trust with borrowers, investors, regulators, stockholders and employees,” the company said. “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. Accordingly, the board took swift and decisive action, and authorized additional remedial steps to rectify these issues.”
Three other senior managers were fired as part of the incident as well, the company said. Lending Club before going public raised $125 million and had investors like Norwest Venture Partners and Google Capital participate in the company’s growth to its multi-billion dollar IPO.
It’s not like Lending Club has had that good of a year either. Lending Club shares have taken a general dive in the past year or so, which could reflect potential challenges in the peer-to-peer lending space.