Renaud Laplanche, a pioneer of the online lending industry in the US, has been banned from the securities industry as part of a settlement with the US Securities and Exchange Commission.
The SEC has charged Lending Club Asset Management, and Mr Laplanche as its former president, with fraud. LCAM is an investment management subsidiary of Lending Club, the peer-to-peer lender that Mr Laplanche helped found and where he served as chief executive until 2016.
LCAM bought Lending Club loans in order to create the appearance of demand for the parent company’s products, the SEC alleges. These loans were at risk of failing to find another buyer on Lending Club’s platform — something that would have cost Lending Club potential revenue, and could have damaged its reputation as a liquid and efficient credit marketplace, according to the SEC complaint.
In one case in 2013, the SEC claims that LCAM, in violation of its fiduciary duty, placed loans with five-year durations into a fund in violation of that fund’s stated duration limits, which required a certain allocation to three-year loans. The Lending Club general counsel objected to the five-year loan purchases but was ignored.
The complaint also alleges that LCAM managers adjusted the models used to value its loans, using a return “floor” that was not disclosed to investors.
LCAM will pay a penalty of $4m, and Mr Laplanche $200,000. Carrie Dolan, LCAM’s former chief financial officer, was also charged and will pay $65,000. Mr Laplanche can appeal his ban from the industry in three years.
“I have agreed not to admit nor deny the specific narrative of the events contained in the settlement,” Mr Laplanche said in a statement. “I am glad that we can now put these issues behind us and focus on the important goals of making credit more affordable to consumers and delivering attractive returns to investors.”
Mr Laplanche’s statement pointed out, however, that the balance of five- and three-year loans in the LCAM fund was disclosed to investors monthly, and that the model adjustments used by LCAM had only a tiny effect on fund valuations.
Mr Laplanche resigned from Lending Club in May 2016, following an internal review of the sale of $22m in loans to a single investor. Lending Club said at the time that the sale violated the company’s business practices and was not adequately disclosed.
Mr Laplanche is now chief executive of Upgrade, a San Francisco-based internet platform that, like Lending Club, connects borrowers and loan investors. As of August, it had originated over $1bn of loans to consumers. Upgrade achieved a $500m valuation in its latest funding round.
A representative of Upgrade said that the securities industry ban on Mr Laplanche would not constrain its ability to securitise loans.
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