SAN FRANCISCO (CBS/AP) — Shares of LendingClub, which forced out its founder last week, slumped further Tuesday after the company disclosed the U.S. Department of Justice opened an investigation into its business.
LendingClub’s stock fell almost 9 percent, with the company also raising fresh concerns about funding. Its shares have fallen 55 percent in the past month.READ MORE: COVID: Redwood City Latest In Bay Area To Approve $5/Hour Grocery Worker Hazard Pay
The sudden departure of Chairman and CEO Renaud Laplanch came last week 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. LendingClub said it was “not surprised” by the subpoena and that it is fully cooperating.
The San Francisco company, meanwhile, said in a regulatory filing 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 value soaring shortly after it went public in late 2014. But Wall Street has cooled since then and in the past year, company shares have fallen 80 percent.READ MORE: Bicyclist Critically Hurt After Being Hit By Vehicle In Lafayette
The latest downturn in its stock came despite the company’s acting CEO sending a letter to investors detailing new steps LendingClub is adopting to strengthen its internal controls.
It listed 10 new measures, like more intensive monitoring of data changes and retraining employees.
“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 its 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.
LendingClub’s stock fell 34 cents to close Tuesday at $3.60.MORE NEWS: Warriors Name Brandon Schneider Team President, COO To Succeed Hall-Of-Famer Rick Welts
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