LendingClub woes continue amid DOJ investigation
NEW YORK - Shares of LendingClub (LC), which forced out its founder last week, slumped Tuesday after the U.S. Department of Justice opened an investigation and the company raised fresh concerns about funding.
Despite a letter sent to investors Tuesday detailing new measures to strengthen internal controls, shares fell 8 percent. Shares have plunged 50 percent in the past month.
The San Francisco company said late Monday that "it likely may need to use a greater amount of its own capital to purchase loans on its platform compared to prior periods."
LendingClub is a peer-to-peer lender, meaning it matches people and businesses that need loans with those who want to provide them.
The idea, touted as a super-efficient method of getting capital where it's needed, was welcomed avidly by investors who sent the company's market capitalization soaring into the billions shortly after it became public in late 2014. But Wall Street has cooled since then and in the past year, company shares have fallen 80 percent.
The sudden departure of Chairman and CEO Renaud Laplanch last week has further shaken confidence.
Laplanch left after an internal review determined that the company's business practices were violated with the sale of $22 million in loans, made to people with sketchy credit scores, to a single investor.
It was also determined that Laplanch did not fully disclose a stake he held in a company in which LendingClub was also considering an investment.
On May 9, following the internal review, the Justice Department delivered a grand jury subpoena, the company said.
In a report to the U.S. Securities and Exchange Commission, LendingClub Corp. said it had identified weaknesses in its financial reporting and said its disclosure controls and procedures were not effective. It also said it is cooperating with both the Justice Department and the SEC.
It also listed 10 new measures, like more intensive monitoring of data changes and retraining employees, to assuage investor concerns.
"The problems identified this quarter run counter to our values and will never be tolerated. We're working hard to make things right and prove to you that we continue to deserve your trust," wrote Scott Sanborn, the company's president who is now the acting CEO.
LendingClub and its smaller rivals -- companies like Prosper, Avant and SoFi -- emerged in the aftermath of the financial crisis.
For borrowers, it meant quick loan approvals and attractive rates, while investors saw attractive returns on loans for which they were able to tailor risk.
However, investors have demanded more information about the performance of some loans at the same time that other financial opportunities have arisen.
The company said it has the ability to meet its cash needs for the next twelve months, based on its ability to reduce loan volume if needed, its cash on hand and funds available from its line of credit.
LendingClub's market capitalization neared $9 billion shortly after its initial public offering in late 2014. The value of the company in the past 12 months, however, has dropped by almost 70 percent.
Shares fell 25 cents to $3.68. At the end of 2014, shares cost almost 10 times that amount.