Lending Club Founder Renaud Laplanche has Resigned as CEO

Former Lending Club CEO Renaud Laplanche on stage at LendIt last month
Former Lending Club CEO Renaud Laplanche on stage at LendIt last month

When I first read the news when I woke up this morning I thought it must have been a joke. The CEO and Founder of Lending Club, Renaud Laplanche, has resigned. But this is not April 1 and it is certainly no joke. The person who has probably had more impact on the growth of this industry than anyone else is no longer CEO of the company he founded – it is effective immediately.

Wow. Just Wow.

There is a press release out this morning with many of the details. The board asked for Renaud’s resignation following the discovery of an improper sale of $22 million in loans to one investor. According to the press release the loans in question departed from the instructions given by this investor. The loans have since been repurchased by the company. But the impropriety did not stop there. From the release:

The review began with discovery of a change in the application dates for $3.0 million of the loans described above, which was promptly remediated. The board also hired an outside expert firm to review all other loans facilitated in the first quarter of 2016 and the firm did not find changes to data in these or other Q1 loans.

The review further discovered another matter unrelated to the sale of the loans, involving a failure to inform the board’s Risk Committee of personal interests held in a third party fund while the Company was contemplating an investment in the same fund. This lack of disclosure had no impact on financial results for the first quarter.

So, it seems that not only were the loans sold to an investor against their instructions it looks like the dates were changed to possibly try and hide something. Then there was the further discovery of a conflict of interest. Given these things it is not surprising that the board asked for Renaud’s resignation.

While we don’t know Renaud’s motivations behind all this, and we probably won’t ever find out the full story, it is clear this is bad news not just for Lending Club, but for our entire industry. Really bad. Coming on the heels of the Prosper news from last week and the OnDeck earnings May 2016 will go down as the worst month ever for our industry. And we are barely a week into the month.

Lending Club released their earnings earlier today and it looks like they produced another solid performance with loan volume, revenue, and net profits all increasing nicely. But none of that is going to matter today. The news of Renaud’s resignation will overshadow everything else.

My Take on This News

People often ask me what is the worst thing that could happen to this industry. I would somewhat flippantly respond that it would be massive fraud by the CEO of Lending Club. While thankfully this is not what has happened here there has clearly been some level of impropriety at the highest level within Lending Club. I am not sure what motivated Renaud to take these actions.

This is going to have massive repercussions inside the company. Renaud was revered as CEO with an approval rate of 96% according to Glassdoor. Everyone I have spoken with at Lending Club from entry level employees on up only had good things to say about Renaud. He had put not just Lending Club but the entire online lending industry on the map.

In my personal dealings with Renaud I have always found him to be the consummate professional since I first met him back in 2011. He seemed to be a man on a mission – he was personally very driven to change the banking system and make Lending Club into one of the financial giants of tomorrow. This will clearly be a bitter personal blow for him.

Was this just a case of a CEO losing his head and misusing his power? What was the story behind this $22 million investor and why they were treated that way? How will Lending Club cope without the only leader they have ever had? Who will they recruit as the new CEO? Scott Sanborn, the long time #2 at Lending Club, is taking over for the time being but I expect they will bring in a new CEO with deep financial services experience at some point. But we may never know the answers to some of these other questions

I only just found about this news an hour ago but wanted to get an article published immediately. We will have more on this story as well as a full analysis of the Lending Club Q1 earnings shortly.

Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech.

LendIt Fintech conducts three conferences a year for the leading fintech markets of the USA, Europe, and Latin America. LendIt also provides cutting-edge content all year long via audio, video, and written channels.

Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.

Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.

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ESI
ESI
May. 9, 2016 8:03 am

It’s unfortunate in many ways.

I feel sorry for all involved and hope this doesn’t begin a series of events that crashes LC and the P2P lending industry.

Observer
Observer
May. 9, 2016 8:14 am

what an embarrassment to the industry

Brian Dally
May. 9, 2016 8:33 am

The troubles we’re seeing with OnDeck, Prosper and now Lending Club all tie to one root cause: The dominance, allure and sugar high of our industry’s over-reliance on institutional capital. The concomitant crash in the form of declining margins (OnDeck), declining volumes (at Prosper) and improprieties (Fundrise earlier this year and Lending Club now) shouldn’t be so surprising. There will likely be more tumult to come before we’re through this.

The solution lies in rededicating ourselves to the cultivation of retail capital. At Groundfloor, we’ve never taken a dollar of institutional capital. We remain 100% retail funded and the first & only real estate lending platform qualified by the SEC to be 100% open to non-accredited investors. Retail capital may be slower to build, it’s true… but inherent to it are certain structural safeguards for investors, platforms and borrowers alike that our industry would do well to acknowledge and model going forward.

This news is all the more sad because even our pioneers and original champions of the retail investment movement (especially Renaud, but also the Miller brothers) have fallen, or at least stumbled on account of their strategic redirection.

Brian Dally
Co-Founder & CEO
GROUNDFLOOR

Darcangelo
Darcangelo
May. 9, 2016 12:43 pm
Reply to  Brian Dally

I think that blaming institutional capital for felonious behavior is a convenient scapegoat to grandstand yourself.

Institutional capital does not make people choose to do the wrong thing.

Brian Dally
May. 9, 2016 1:13 pm
Reply to  Darcangelo

To be clear, we’re not blaming institutional capital for misdeeds but pointing out that wherever institutional capital dominates we see three persistent problems:

1) When the cycle turns, capital supply shrinks (see Dan Ciporin’s excellent LendIt presentation) and margins get squeezed,

2) Transaction costs are always higher — because institutions have the supplier power and scale to demand special treatment, and

3) The opportunity for misbehavior increases — because the dollars related to any one deal are bigger and the stakes higher.

Are we grandstanding by voicing our opinion? As a startup, when warranted and relevant, we are certainly going to call attention to the work we’re doing, how it’s different, and why. Sure thing. You might not appreciate it, but we want to connect and join in the conversation with others who will.

B. Smith
B. Smith
May. 9, 2016 9:26 am

Peter,

Is your confidence shaken in the industry? I asked a similar question last week in light of the news coming out of Prosper. I hate to think of this as the Titanic but fraud is never good in a growing industry. We can only assume the regulators are now sharpening their pencils, right?

I hate to hear this news. It now means I have to now tell my CEO – my wife – about the news. Not good. Oh brother! We have to be able to grin and bare it sometimes 🙂

sara
sara
May. 9, 2016 9:29 am

Who are the other executives that were fired?

Anita
Anita
May. 11, 2016 11:05 pm
Reply to  Peter Renton

Back to Poland, Adelina!

Mark Mowatt
Mark Mowatt
May. 9, 2016 9:54 am

What a shocker!! Very unfortunate for the entire industry, including Renaud, who has been an incredibly inspiring pioneer and leader.

Ed
Ed
May. 9, 2016 10:47 am

My Hopes/thoughts –
Prosper layoff was getting the company ready for a buyout from a major bank – Goldman?
Lending Club: This is a board power play. Up Until now Renaud has been able to run the show and that may not sit well with everyone on the board.
Earnings continue to do well and this just represents a great buying opportunity.
Lending club is purchased by a tech company looking for inroads into fin tech.

Financial Samurai
May. 9, 2016 11:33 am

I don’t get something: Why did the investor who bought $22M of loans buy $22M of loans if it was against their instructions? If I don’t want to buy something, I don’t buy it.

The bigger picture is obviously that of deceit and time stamping, but I don’t get the main point everybody is writing about. Did the investor buy X when he thought you bought Y? If that is the case, all trust goes out the window and the entire industry is in a multi-year downcycle where the SEC is going to start aggressively regulating. They have to, otherwise, people will say the SEC didn’t do their job.

Regards,

Sam

Andrew N
Andrew N
May. 9, 2016 11:50 am

I don’t think the investor bought $22M worth of loans. I think they had given money to LC and provided directions on how their funds should be handled. LC just bought $22M of loans for the investor even though doing so violated the investor’s explicit instructions.

sara
sara
May. 9, 2016 3:11 pm
Reply to  Andrew N

WOW RL and MACK were invested in a fund that purchased LC loans! Neither disclosed it!

sara
sara
May. 9, 2016 5:48 pm
Reply to  Peter Renton

Peter-
I’m right about most of this quite frankly. A word to the wise-be careful giving what could be construed as investment advice on this forum.

Financial Samurai
May. 9, 2016 4:32 pm
Reply to  Andrew N

OK, so instead of buying prime loans, LC bought less than prime loans and called them prime loans?

The price action today was BAD. But there are no details as to exactly what LC did.

The bigger issue is crisis of confidence. Retail investors don’t want to lend either once they catch wind b/c who knows whether they will get their money back.

It is my duty as a PF blogger to tell my readers to BEWARE until the smoke clears.

Sam

Financial Samurai
May. 9, 2016 9:22 pm
Reply to  Peter Renton

Worst case scenario really might be Lending Club trading down to its book/cash value, or 60% lower. A company’s valuation is largely based on a companies Future Value, especially if the company is loss-making.

The fear is now the pace of lending and borrowing will fade and go to alternatives who do not have management credibility issues.

The problem really is more the employees of LC, Prosper, the entire industry… and the borrowers who will see their interest rates spike higher due to distrust.

Sam

Deedee
Deedee
May. 9, 2016 12:50 pm

So how does this (and other recent turbulence) affect the average retail investor?

Derek
Derek
May. 9, 2016 1:38 pm

Peter, I’d like to hear your strategy going forward. Is the industry still fundamentally sound?

Observer
Observer
May. 9, 2016 2:23 pm
Reply to  Derek

of course not. this is the beginning of the end. next year’s conference will be called “RuinedIt”

Loren Picard
Loren Picard
May. 9, 2016 2:47 pm

I think all the hyperbole around “the end is coming” will be a sideshow when looking back next year. Don’t forget that there are numerous firms not in the headlines every day doing a fine job in online lending. They are the firms not drawing attention to themselves and just getting the job done. If you are a leading firm you are bound to draw attention to every move you make. Unfortunately the leading firms have a much bigger problem on their hands because they’ve laid out expectations of hyperbolic growth and now that is not going to happen. For the private firms, they are counting their blessings they are not public. We might just be looking at the Myspace and AOL phenomenon-phase all over again. There are plenty of firms with solid foundations prepared to go forward in this environment. I’ve had a half dozen conversations today and have faith the quiet players will survive and thrive. The bigger, leading name firms, might just get bought out at pennies on the dollar and along with their purchase will go their promise. There are great firms in the wings ready to step up.

Financial Samurai
May. 9, 2016 10:06 pm
Reply to  Loren Picard

The private firms may be counting their blessings, but what are their real valuations now? If LC is twice as big as Prosper, and LC has a 1.76B market cap with the same growth rate as Prosper, does that mean Prosper is only worth about $880M now, or HALF the valuation it raised money at previously? Private company startups are very underpaid.

When you are private, you can hide, but there is NO LIQUIDITY. Only the founders get to cash out while the employees left holding the bag.

Sam

Dara Albright
May. 9, 2016 4:11 pm

I don’t recall people reverting to fax machines when the Internet bubble burst in 2000. Quite the contrary – the Internet evolved and became ever stronger. Similarly, P2P will only learn and grow from recent turmoil. I think Loren and Brian both make valid points. I believe that everything we are seeing now is just the industry’s way of finding new ways to scale. And I do believe that the scalability is becoming more dependent on the retail investor. I also believe that retail investors will benefit by having greater access to yield. As we stated in the final paragraph of our recently released white paper: “New leaders will rise. Some unexpected frontrunners will fall. The businesses that will best be able to oblige the retail customer, adapt to these regulatory changes, and penetrate retail’s $14+ trillion retirement capital will prevail. But of all of the victors in this new democratized investing landscape, by far the greatest winners of all will be the American people.”

Dara Albright
May. 9, 2016 4:39 pm
Reply to  Peter Renton

Agreed. And as long as regulators don’t use this as an opportunity to needlessly restrict retail access, the industry should be able to emerge smarter and stronger.

Dave S
Dave S
May. 10, 2016 6:12 am

The volume of loans on the platform has varied in strange ways, especially in recent months. It seems as if some institutional investors had first shot at the loans and the retail lenders were left with the rest. This is Fintech. The underwriting models should have utilized advanced analytics to better weed out likely defaults. Yet even a cursory reading of loan profiles showed many that should not have been pushed through. The incentives to maintain volume were too great. Too many loans defaulted shortly after issuance. Management and the Board failed to address these issues. I smell class action litigation. The lawyers will do well. I’ve been an investor for years, and my net is over 8%. With reform they still have potential to transform the banking industry.

sara
sara
May. 12, 2016 6:54 am
Reply to  Dave S

Agreed-but it’s not Fintech as a whole. It’s Lending Club committing what could be construed as fraud.

Larry Ludwig @ Investor Junkie
May. 10, 2016 10:14 am

I of course, like Peter was a very early investor in P2P loans. There is no way else to put it — this is bad news. Primarily with trust which is a bad thing for a financial company. Once the trust is broken it can take years to fully fix, if ever with some companies.

More importantly is where we are in the economic cycle and how it affects these companies. We are in the late fall of the economic cycle. These news stories are all signals we are in this stage.

How will these firms weather winter? As an investor expect decreased returns and if you have entered just recently maybe even negative real returns. These companies have not hit bottom yet.

In my personal case because of tax reasons (because all investments are in taxable accounts and my current tax rate) not funding any new investments and stopped late last year. The second reason is because of the economic cycle.

I am still hopeful of this space overall and long-term prospects. Selectively I still invest in some companies in this space. Though will I reinvest in Lending Club or Prosper again is yet to be determined if ever.

With any new business segment, the real innovation will occur in the next business cycle after the dust settles.

Darren
May. 19, 2016 4:27 pm

A decade after the mortgage bubble led to a global financial meltdown, I am somewhat surprised by the swift and severe reaction to this news, both by the press and the P2P lending community.

Sure, LP and LC have made some regrettable mistakes, as have some of the others. It is not yet clear what the impact or severity of these improprieties are, nor what the offended party’s real motivation is.

Is it possible that the industry has gotten big enough to become a target of the very powerful incumbents it intends to displace, at least in part? Maybe this is some sabre rattling.

I am all for better accountability, ethical conduct and full disclosure. Based on what I’ve read, I think LP should have resigned, and people who did quiet side deals should be fired, but “is the industry dead?” Come on. If we held Wall Street up to these standards, we’d have to turn lower Manhattan into the world’s largest prison complex.

I don’t know about the rest of you (do what you will and this is not investment advice, as I am not qualified to give it), but I’m loading up on LC shares. I don’t think this company’s going anywhere, and in a year this will be all but forgotten.

Let’s not forget what this industry (and LC) does and why it exists. Where else can the average person invest relatively tiny amounts with this much direct control and visibility? oh, and with a reasonable expectation of a decent return in this low rate environment. Not many places.

This is a speed bump.