Shares of LendingClub(LC) - Get Report closed at an all-time low Thursday after multiple firms said they would investigate the peer-to-peer lender for violations of federal securities laws. The fall comes a day after CEO Renaud Laplanche was removed from his post following questionable related-party transactions.
An internal investigation at the San Francisco-based company found that $22 million in subprime loan sales were invested in an outside fund against the investor's requirements and Laplanche was found to have ties to the firm. The company noted that three other senior managers resigned or were terminated based on the findings.
"While the financial impact of this $22 million in loan sales was minor, a violation of the Company's business practices along with a lack of full disclosure during the review was unacceptable to the board," the company said in a statement.
Analyst Michael Tarkan of Compass Point Research & Trading told TheStreet that the situation being faced by LendingClub is "very fluid." The regulatory scrutiny coming from government agencies is inevitable, he said, and "whether that is already priced into the stock at this point is difficult to determine," Tarkan said. The key issues today are questions around funding and what is going to come from any other investigations, he said, adding that he does not have visibility into any at this point.
LendingClub was expected to purchase a 15% stake in Cirrix Capital, the fund in question, for $10 million, but Laplanche did not disclose that he had a personal interest in the company, an investment he actively fought for despite poor performance over the past few years, the Wall Street Journal reported.
Cirrix is a fund that buys loans from LendingClub with other bank loans. LendingClub is a online marketplace where borrowers and investors are connected to make personal and business loans.
LendingClub's shares closed down more than 7% Thursday at $3.78 per share and have dropped more than 65% since the beginning of the year, despite posting better-than-expected first quarter results. The world's largest online lending marketplace reported operating revenue of $151.3 million up 87% from the same quarter last year mostly due to a significant gain in new loan originations, the company said.
Net income was $4.1 million or 1 cent a share, up from the net loss of $6.4 million, or 2 cents a share, reported a year earlier.
"As our first quarter results demonstrate, LendingClub's business was strong despite the increasingly challenging investor environment," president and acting CEO Scott Sanborn said in a statement.
One thing is for sure, that there is a great deal of uncertainty now among its institutional and retailer investor base, Tarkan said. "There are a lot of unknowns as to how durable LendingClub's funding is," he continued.
Concerns are not only limited to LendingClub - the company's New York-based competitor, On Deck Capital(ONDK) - Get Report said last week that is it shifting from a marketplace lending model to a model with which it would retain more loans on its balance sheet, Tarkan said. This drove a big decline in the company's stock, in addition to its earnings miss and weaker guidance, he said. The company is closed around $4.31 per share, down nearly 50% from $8.30 at the beginning of May.
Among the firms looking into whether LendingClub executives violated securities laws are securities litigation firm, Block & Leviton and Kessler Topaz Meltzer & Check, among others.