LendingClub Corp.’s founder and former chief executive officer agreed to be banned from the securities industry for at least three years to resolve allegations that he misused investors’ money to prop up the company.
Renaud Laplanche, 47, will pay $200,000 to settle U.S. Securities and Exchange Commission claims that he improperly directed an outside investment advisory firm — of which he was president — to buy LendingClub loans that were at risk of going unfunded.
That helped LendingClub, earning revenue for the firm and keeping borrowers from going to competing firms. But the loans purchased by an investment fund advised by Laplanche’s firm were not the type of loans investors had been promised, and the firm did not disclose to investors that the loans were purchased in part because they were about to go unfunded, the SEC alleged.
The shift came in late 2015 and early 2016, a time when many investors who had previously been bullish on the market for loans originated by LendingClub and other so-called marketplace lenders had started to pull back from the sector amid fears of rising loan delinquencies.
The SEC alleges the investment fund advised by Laplanche’s firm ramped up its purchases of inappropriate loans soon after two big investors stopped buying loans in late 2015.
LendingClub Asset Management, the company that managed the investment fund, agreed to pay $4 million over the claims. Carrie Dolan, 53, former chief financial officer of both LendingClub and the asset manager, was fined $65,000. All agreed to resolve the claims without admitting or denying wrongdoing.
“Investment advisors have an obligation to put their clients’ interests ahead of their own,” said Daniel Michael, head of the SEC’s complex financial instruments unit. “By using funds managed by LCA to benefit its parent company, LCA and Laplanche failed to do so.”
Laplanche was ousted over the improprieties in May 2016 and an internal investigation later found LendingClub had made questionable loans to him and family members. Laplanche noted those loans were repaid.
The San Francisco-based firm was a pioneer in marketplace lending, an online industry that matches borrowers with investors willing to finance their loans. But shares have been cut in half since Laplanche’s departure and other problems arose in 2016.
Laplanche said in an emailed statement that he was “pleased to have worked out a settlement with the SEC.” He intends to stay in his role as head of lending start-up Upgrade, he said. The settlement allows him to seek readmission to the securities industry after three years.
Laplanche also said that Upgrade is not an investment advisor or investment company and “isn’t performing any activities covered by the bar.”
LendingClub Chairman Hans Morris said in a statement that the firm was happy to have closure and that “we have full confidence in our new management team and we are a better company today.”
“Ms. Dolan cooperated fully with the SEC in its investigation,” said Charles Sipkins, a spokesman for the former executive. “Throughout her career she has acted in accordance with high ethical standards and she is happy to put this matter behind her.”
The settlement was announced Friday but was not widely disseminated until Monday.
Shares of LendingClub closed up 1.3% at $3.93 on Monday.
Bloomberg contributed to this report.