Lending Club Cuts Jobs, Reveals More Questionable Loans by Ex-CEO

Laplanche was not immediately available to comment. LendingClub announced it was cutting its workforce by 12 percent, or 179 jobs, on Tuesday.

LendingClub’s board also named Scott Sanborn as its chief executive and president, replacing Laplanche.

Lending Club also said Hans Morris, who had taken over as executive chairman, will continue in that role.

Speaking during Lending Club’s annual shareholders’ meeting on Tuesday, which the company postponed by three weeks, Sanborn said that most of the investors who put the brakes on their dealings with Lending Club were returning to the company’s loan platform. After scoring a 52-week high of $17.52, shares of Lending club have now settled at just $4.30 as of yesterday’s close.

“I think you can be pretty certain that the board has put in controls so nothing like this will happen again”, said Todd Baker, managing principal at Broadmoor Consulting and senior fellow at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School. Before Laplanche’s departure, it was considered by many investors and analysts to be the industry’s standard bearer. But revelations of questionable practices have drawn scrutiny from investors and regulators.

To that end, Lending Club revealed that it has conducted its own internal review, leading it to adjust the valuation of assets held by six private funds managed by LC Advisors “that were not consistent with generally accepted accounting principles and impacted net asset values and monthly return figures for the LCA funds”. It will reimburse US$800,000 to affected investors.

LendingClub has put restrictions on investors’ ability to redeem money from one of the funds, according to a letter to investors seen by Reuters.

Lending Club has been one of the leaders in the so-called “online loan marketplace” industry.

Lending Club said all of the loans have been paid back and that it believes neither Laplanche, nor his family members, took out any more improper loans after December 2009.

Those reporting problems caused investors to pull back from investing in Lending Club loans, resulting in a rare drop in loan originations for the firm.

But, Harralson also said Lending Club’s business model remains solid, and lowering expectations about its volume of loans lets the company establish a new base to build upon.

LendingClub raised $24.5 million from investors including Foundation Capital, Morgenthaler Ventures, Norwest Venture Partners and Canaan Partners in April 2010.

“The company is confident that there are no other situations in which Mr. Laplanche inappropriately originated loans in his or his family’s name during periods after December 2009”, Lending Club said in a filing.

The “investor confidence” on which Lending Club spoke was shaken in May, when Laplanche was forced to resign after an internal company review found $22 million in loans were made against the express instructions of an investor. In addition, Laplanche also got himself into hot water after it was discovered that he hadn’t disclosed a personal investment in another third party fund that Lending Club had been considering investing in.