P2P Lending / NFT Lending Forum

http://www.bloomberg.com/news/articles/2016-05-09/lendingclub-plunges-after-ceo-quits-firm-finds-loan-sale-abuse

Trying to understand what happened here ... details seem sparse.

From what little I can gather, LC knowingly sold $22 million in loans to an investor that didn't meet the investors criteria.  Am I on the right track?

Can anyone add a little more color/explanation to this?

A little more info ...   http://www.reuters.com/finance/stocks/LC/key-developments/article/3369102

from: jdaun on May 09, 2016, 10:24:57 AM

I'm not sure what is the bigger offense.  A) the board found that the company has falsified records in the deal with Jefferies.  B) The CEO owned a stake in a company he wanted LC to invest in and neglected to tell anyone about the conflict of interest.

Management changed the dates on the notes. My impression was they did this to fill an order that had to be done in a certain time frame. Manipulation of data is no good

Sent from my SAMSUNG-SM-G935A using Tapatalk

from: Fred on May 09, 2016, 10:33:39 AM

I don't know who this Jefferies Group is but they recently reported a loss. I'm guessing they were scrambling to figure out how to make it less bad and discovered some questionable dealings with LC that they unwound. How this lead to Leplache's resignation, I don't quite understand. If LC wanted to unload some shitty loans, I don't know why they wouldn't just put them on the regular note platform or Folio. Never been a shortage of suckers there.

"How bad was the first-quarter market swoon? Ask the Jefferies Group’s chief executive, Richard B. Handler.

The Wall Street investment bank, a unit of the Leucadia National Corporation, reported a $166.7 million loss for its first fiscal quarter, which ended in February, as tumultuous markets slammed equity and fixed-income trading, junk bonds and leveraged lending. Investors drained money out of the market on fears of economic growth and China’s stability, and companies put a stop to capital-raising, forcing Jefferies to pull back until the markets recovered.

“We are humbled,” Mr. Handler said of the quarter...."

http://www.nytimes.com/2016/03/16/business/dealbook/jefferies-reports-166-7-million-loss-in-quarter.html

https://en.wikipedia.org/wiki/Jefferies_Group

I would not go as far to put Jefferies as scapegoat. However, my take on this event is two folds:(1)it's not a financially significant event but LC made a huge deal out of it. That implies LC's internal control is not that bad considering it's a young company. And LC will definitely strengthen its internal controls and compliances. The new chairman Hans Harris was a executive at Citi and Visa, who carries a lot of experience on managing financial companies. This is actually a big plus for retail lenders concerning about platform risks. (2) the resigning CEO is a founder and his resign will cause some turnover inside LC and may hurt its growth aspect if the new CEO does not have the same sharp vision and leadership as him. And this is negative for LC stocks.

Quote"> from: yojoakak on May 09, 2016, 11:23:34 AM

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from: yojoakak on May 09, 2016, 11:23:34 AM

Just listened to the replay of the conference call.  Wasn't able to learn much beyond what's been reported, but it is clear that the management team in place made a tough decision to do the right thing.  That raises my confidence.  But the uncertainty on how other investors will perceive this and the possibility that there may yet be fire from the smoke shakes my confidence.  A sad day for sure, hopefully not a disastrous one.

Wondering how the results would have been perceived absent this news?  Seems like things were in line with expectations.  I've always been bothered by LC's seeming obsession with managing loan issuance to manage results....wondering if the impropriety was related to that, especially since it seems to have been at very end of Q1 and beginning of Q2.

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Just got this from Lending Robot.  Anyone with a Lending Robot account probably got this as well.
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Didn't LC raise interest rates sometime in April. I wonder if Jefferies wanted to buy higher interest notes and LC changed origination dates on older notes to look like they had higher interest rate???

from: Ran on May 09, 2016, 11:44:27 AM

Quote"> from: investny on May 09, 2016, 01:58:31 PM

From the 8-K:

"The loans in question failed to conform to the investor's express instructions as to a non-credit and non-pricing element. "


What does this mean?

http://ir.lendingclub.com/Cache/c34233919.html

Quote"> from: jdaun on May 09, 2016, 10:32:53 AM

What I don't get is why fudge the numbers for such a small amount? $3mn in loans is nothing to LC. There has to be more to the story. Unfortunately, I don't think the "more" will be good news.

Quote"> from: yojoakak on May 09, 2016, 03:16:45 PM

It's not the origination dates, although that's stupidly bad. It's the self-dealing via Citrix. Laplanche can't sail away from this mess. Looks like the yacht may be up for sale soon.

from: LonghornSF on May 09, 2016, 03:25:16 PM

from: broad40 on May 09, 2016, 05:13:39 PM

Cherry picking the best loans for the fund.

Just in case John Mack's involvement is new news here's the source:

http://www.bloomberg.com/news/articles/2016-05-09/mack-invested-with-former-lendingclub-ceo-in-loan-buying-venture

from: broad40 on May 09, 2016, 05:22:22 PM

If Renaud and Mack were truly "cherry picking"  the best loans and selling the rest to investors this seems like a criminal issue. At the very least, Mack should be forced to resign from the LC board immediately. 

from: mo on May 09, 2016, 05:19:41 PM

from: LonghornSF on May 09, 2016, 05:45:52 PM

from: broad40 on May 09, 2016, 05:57:13 PM

Quote"> from: WES on May 09, 2016, 03:50:19 PM

On the other hand you can see why Mack would be extremely "distressed" (or stronger language) to learn after the fact that he'd been placed in a position of conflict by RL. That's a big part of why RL was fired? It was personal?

from: Rob L on May 09, 2016, 06:08:13 PM

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What did Mack know and when did he know it?

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from: bcartpa on May 09, 2016, 06:40:37 PM

from: bcartpa on May 09, 2016, 06:40:37 PM

I took a wild gamble and bought 2K lending club today @ $5.00. I'm not convinced that this will end LC with the amount of loans on the books and the customer base. I think average case, the stock goes between 3 and 7 dollars over the next year. Optimistic case the stock reaches $10 in a few years or is bought out for a premium.

If the new management team has half a brain they would institute a BRV for retail lenders to add confidence. I know I would not invest another dime in this company without one.

from: andy3109 on May 09, 2016, 07:20:39 PM

And the hits just keep on coming (SEC inquiry):
http://www.bloomberg.com/news/articles/2016-05-09/sec-enforcement-division-said-to-review-lendingclub-disclosures-io0hbhe5

from: lender90530 on May 09, 2016, 07:55:13 PM

from: andy3109 on May 09, 2016, 07:20:39 PM

How would you guys think about Scott Sanborn?

http://seekingalpha.com/article/3973359-lendingclubs-lc-management-q1-2016-results-earnings-call-transcript?page=1

Scott Sanborn
I recognize, we've given everybody a lot to digest this morning. I hope we've answered many of your questions, but I'm sure you're all going to have more in the days and weeks ahead. LendingClub is always operated with transparency and it is our commitment to do so going forward. And so our intention is to schedule as many investor meetings as we can in the next few weeks. In the meantime, if you have questions, please don't hesitate to reach out to me, James or Carrie. We thank everybody for their confidence and support.

Quote"> from: hzhou9 on May 14, 2016, 08:06:11 AM

I don't know all the times when you are not allowed to announce things and such.  Is it possible we are stuck in one of those because of the delayed release?

from: Fred93 on May 14, 2016, 04:49:40 PM

Anyone have thoughts on recent insider filings?

from: RT45 on May 14, 2016, 05:57:49 PM

from: RT45 on May 14, 2016, 05:57:49 PM

This is rich. Nothing that the company has said or done warrants concern about bankruptcy or imminent collapse and people want the CEO to come out on TV and say say as much?  Why on earth would the company do this?  As someone already said, the stock is going down in concert with Ondeck, so the sell off is being driven by speculators shorting the industry, most likely.

Put it this way, nothing the company says right now will soothe a few hysterical investors who have very active imaginations (you know who you are).  My advise to LC, better to keep calm and carry on the business of running the company and wait until the fear subsides on its own.

Earlier in this thread I made a point about the fact that LC had not scheduled a conference call to go with the 5/16/16 filing of the 10Q. 

I went back and reread the transcript of the 5/9/16 call, and I've decided that it was a pretty complete earnings discussion, so it seems likely that no further earnings call is required.  When I listened to the call the 1st time, my mind was so focused on one particular issue that I didn't remember half of what they said.  Missing of course was discussion of projections or trends, but that's understandable given the expected business perturbations.

Meanwhile, I know that many of you are concerned about what might appear in the 5/16 10Q filing, or whether past financials might be restated, but my latest theory is that it will be boring.  I base this on something that Scott Sanborn said in the 5/9 call:
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from: mchu168 on May 14, 2016, 10:26:30 PM

from: mchu168 on May 14, 2016, 10:26:30 PM

I would rather they take their time and develop a reasoned defensible response than come out too soon with some half baked platitudes.

from: Fred93 on May 14, 2016, 06:25:41 PM

from: hzhou9 on May 15, 2016, 10:46:03 AM

I have an appetite for consumer credit risk. What I don't have an appetite for is equity risk in LC, which is exactly what you get when you invest in LC notes without a BRV. When you purchase LC notes, you are basically purchasing the equivalent of a LC junk bond whose returns are tied to the notes that you selected. You are at the mercy of business decisions that LC makes to maximize shareholder wealth. They can expend cash to buy back their stock (which they have already done and have authorized themselves to do more of), they can incur debt to make acquisitions, etc.. As far as I know, unlike bondholders, noteholders don't have any protective covenants to restrict LC's behavior to protect their interests. If I were interested in investing in junk bonds, I would do so only through a well diversified portfolio of them like the HYG ETF has. Institutional investors are not stupid; that's why they demand LC protects them through a BRV.

from: lender90530 on May 15, 2016, 05:21:05 PM

Another interesting article about the factors that may lead to demise of Lending Club.

Will LendingClub Survive as a MarketPlace Lender?
https://www.linkedin.com/pulse/lendingclub-survive-marketplace-lender-mark-wilcox

This whole affair to date, has been a classic case of the silence being deafening. I would suspect Sanborn and the board know this, and will make some sort of announcement this week.  Not to do so, would be downright moronic.  They need to say something....anything.  I can understand their silence last week, but it can't go on for much longer........

Quote"> from: LonghornSF on May 15, 2016, 08:54:50 PM

from: mchu168 on May 16, 2016, 10:32:04 AM

from: nonattender on May 16, 2016, 10:38:53 AM

Should we be worried that we haven't seen the promised 10Q yet?  Or is that something that would most likely be released after market close in any case?  Hopefully it will come out as promised and then management will start opening up with some updates on what they know.  I'm still sitting on my IPO LC shares and figure they will never be worth what I paid....I just hope things don't get any worse.

It would take us 3-5yrs to fully unwind our positions in LC so patience seems warranted.  I've been investing and buying loans in LC for 8yrs so I'm past worrying that it's a Ponzi scheme.

They have a lot of cash on hand which means they can lose money for quite awhile.  In fact if I was Sanborn, I'd tell the investors he's building for the future and to expect losses for the next two years; the Amazon approach.  Sanborn has a very rich and unique opportunity here to do things the RL perhaps was incapable of doing.  He's been handed a well funded "turn around" which is not usually the case.

LC can return to the original pitch and build the retail investor base with new products and new approaches.  Profits won't be as rich, but they wont' be living at the whim of institutional investors.

from: mchu168 on May 16, 2016, 10:32:04 AM

from: bobeubanks on May 16, 2016, 06:41:45 PM

Nice Bloomberg article.  WSJ & Bloomberg reporters are good at finding employees who will talk.
http://www.bloomberg.com/news/articles/2016-05-17/inside-lendingclub-s-shakeup-ceo-s-exit-said-to-hang-on-trust

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Company is considering new ways to draw funding for its loans

Investors who "contributed a significant amount of funding" for loans have paused purchases to examine their performance "or are otherwise reluctant to invest," San Francisco-based LendingClub said, adding that the retreat is hurting its ability to field new loan applications.

Higher interest rates might be needed to bring back investors, "which may serve to erode the company's margins in the near term but may be necessary to get the company back on track," BTIG analysts including Mark Palmer and Giuliano Bologna wrote in a note to clients. Management has to re-instill confidence in LendingClub's platform "while the company contends with a legal overhang," they wrote.

Details of some of those arrangements were disclosed Monday: Acting CEO Scott Sanborn received a grant of restricted stock valued at $5 million and his salary was increased to $500,000. Chief Financial Officer Carrie Dolan received $3.5 million of restricted stock units and her salary was increased to $400,000. Both executives also received $500,000 cash awards that will pay out in a year.

LendingClub's troubles are affecting competitors. Prosper Marketplace Inc., its largest rival, has met with investors including Fortress Investment Group about potential capital injections, a person with knowledge of the matter said.

MORE here
http://www.bloomberg.com/news/articles/2016-05-17/lendingclub-shares-fall-after-investors-suspend-debt-purchases?cmpid=yhoo.headline

from: investny on May 17, 2016, 01:54:25 PM

from: BruiserB on May 17, 2016, 02:05:57 PM

Letter from LC CEO
http://ir.lendingclub.com/Cache/1001210511.PDF?Y=&O=PDF&D=&fid=1001210511&T=&iid=4213397

Quote"> from: investny on May 17, 2016, 04:40:01 PM

from: Lovinglifestyle on May 17, 2016, 07:33:15 PM

I got the link from Lend Academy blog post

Sometime it is interesting to look at what people were saying few years ago. I came across a gem from Matt Levine written when Lending Club filed SEC registration for IPO.

Lending Club Can Be a Better Bank Than the Banks
http://www.bloomberg.com/view/articles/2014-08-27/lending-club-can-be-a-better-bank-than-the-banks

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Just got this email. For some reason only got it for one of my accounts/emails.

I'm Scott Sanborn, President and acting CEO of Lending Club. I've been on Lending Club's leadership team for the past six years as Chief Marketing Officer and Chief Operating Officer, and I wanted to take a moment to introduce myself and describe our current focus.
 
Individual investors like you are - and will always be - the foundation of our marketplace.
 
Given recent events, my immediate focus is on how Lending Club can best serve you - our investors. We've talked to hundreds of our investors - spanning individuals to financial advisors to banks to large institutions - over the past week about the strength of our business, our operations, our people, and our data integrity. Let me assure you that we are in a strong financial position with a substantial amount of cash and securities on our balance sheet - $868 million. We plan to be around for many years to come.
 
The performance of loans facilitated through the platform remains robust. We continue to service and process borrower payments just like we always have, and the interest and principal payments that borrowers make will continue to be passed on to you just as they were before.
 
We're extremely proud of the products we're providing to both borrowers and investors, and I look forward to sharing more with you in the coming months and years about our company and our results.
 
I'm not working alone. Our Executive Team has been working together for the past six years and has deep expertise in credit, operations, marketing, finance, human resources and technology. We're also supported by one of the strongest Board of Directors in the industry. It includes Hans Morris (former President of Visa and now our Executive Chairman), Larry Summers (former US Treasury Secretary), John Mack (former CEO of Morgan Stanley), Mary Meeker (a Partner at Kleiner Perkins Caufield & Byers) and other experienced executives.
 
I will continue to keep you informed as we move ahead. In the meantime, feel free to contact our team with questions and suggestions at (888) 596-3159 7am-5pm PT, Monday through Friday, or email us anytime at [email protected].
 
Thank you for investing with us. I look forward to having you as an investor for years to come.
 
Sincerely,
ScottSignature
 
Scott Sanborn

I didn't get anything

There is another completely different email in another thread. Much more detailed email.
I think they sent them out based on account size.

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from: twigster on May 20, 2016, 10:23:57 AM

from: dompazz on May 20, 2016, 11:11:03 AM

from: janef on May 20, 2016, 01:11:23 PM

IIRC Renaud claimed few months ago that there are 100,000+ retail lenders on the platform. I typically use between 100,000 and 150,000 as ballpark for number of retail accounts on the platform. I am biased that marketing tend to inflate numbers so I assume this count is actually the number of accounts by retail lenders as lenders can have multiple accounts, each with unique email address. Assuming on average an household has 2 accounts, most probably there are between 50,000 and 75,000 retail lenders on the platform.

from: SeanMCA on May 20, 2016, 01:55:33 PM

Quote"> from: Fred on May 09, 2016, 11:54:31 PM