The Securities and Exchange Commission charged a LendingClub subsidiary and the firm’s former CEO with fraud Friday, while also announcing a settlement deal that resolves a long-running probe of the San Francisco-based online lender.
The SEC alleged that LendingClub Asset Management and former LendingClub CEO Renaud Laplanche improperly used investor money to benefit the publicly traded company.
Under the settlement, Laplanche is barred from the securities industry, though he can apply for reinstatement in three years. He agreed to pay a $200,000 penalty.
The settlement is not expected to affect Laplanche’s ability to run Upgrade, a rival online consumer lender that he founded after leaving LendingClub in May 2016.
LendingClub Asset Management, which is a subsidiary of the parent company, will pay a $4 million penalty. The SEC did not bring charges against LendingClub Corp., which self-reported the violations and provided extraordinary cooperation, according to the agency.
The SEC brought additional charges of improperly adjusting fund returns against Laplanche, LendingClub Asset Management and former LendingClub Chief Financial Officer Carrie Dolan.
Dolan agreed to pay a $65,000 penalty to resolve the charge. None of the defendants admitted or denied the SEC’s findings.
“Investors depend on fund advisers to give them the straight scoop on performance so they can make informed investment decisions," Jina Choi, director of the SEC’s office in San Francisco, said in a press release. “Advisers who adjust their valuation processes to boost results are in breach of their duties to investors.”
A separate Department of Justice settlement involving LendingClub is expected to be announced later on Friday.
Federal authorities began digging into LendingClub’s operations after the company’s board launched an investigation shortly before Laplanche’s sudden departure in 2016. The CEO’s exit under a cloud of scandal led to a sell-off in Lending Club shares, and the firm’s stock price has yet to recover from that setback. Its shares were trading at $3.88 late Friday.
LendingClub operates an online marketplace that matches consumers who want an installment loan — often to refinance existing credit card debt — with individual and institutional investors.
Private funds that want to purchase interests in those loans can do so through LendingClub Asset Management, a registered investment adviser that was formerly known as LendingClub Advisors.
The SEC found that the LendingClub subsidiary and Laplanche breached their fiduciary duty to investors by purchasing interests in certain loans that were at risk of going unfunded, in order to benefit LendingClub.
The agency also found that the three defendants took improper steps designed to improve the returns that were reported to fund investors.
“We are pleased to have resolution and closure,” LendingClub Chairman Hans Morris said in a press release Friday.
“Following an internal review in 2016, LendingClub’s board of directors accepted the resignation of Renaud Laplanche as chairman and CEO of the company. The board’s decision was not made lightly but the violation of the company’s business practices along with a lack of full disclosure by Mr. Laplanche during the review was unacceptable,” the statement continued.
“The findings of the SEC further support the board’s decision to take swift and decisive action. We have full confidence in our new management team and we are a better company today.”
For his part, Laplanche said in a statement that he is pleased to have worked out a settlement with the SEC.
He also defended some of the specific actions taken by the LendingClub subsidiary while he was at the helm of the company, noting certain monthly disclosures that were made to investors and saying that he believes any manual adjustments to valuations were made in good faith.
“With the benefit of my prior experience, I feel better equipped to establish a strong culture of compliance and effective internal controls under the supervision of capable professionals,” Laplanche added in reference to his current job as CEO of Upgrade.
Dolan, who is now the chief financial officer at the car insurance startup Metromile, cooperated fully with the SEC, according to her spokesperson.
“Throughout her career she has acted in accordance with high ethical standards,” the spokesperson said in an email, “and she is happy to put this matter behind her.”
