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Two former LendingClub executives mishandled investors' money and falsified the money they oversaw, SEC said Friday.
Former CEO Renaud Laplanche, former CFO Carrie Dolan and a subsidiary of LendingClub will pay a combined $ 4.2 million to settle the charges. The settlement also prohibits Laplanche from the securities industry for at least three years.
The regulators had already accused the company of misleading customers on fees and withdrawing money from their accounts without authorization. LendingClub connects borrowers directly to investors without the banks being intermediaries.
The advisory branch of LendingClub and Laplanche ordered one of the private funds with which LendingClub worked to buy interest on loans that appeared to be unfunded, according to the SEC.
This served "to benefit from LendingClub, not the fund," the SEC said in a statement. Laplanche, Dolan and the advisory unit also inflated the returns of the funds they managed, the report adds.
"Investors depend on financial advisors to give them a clear idea of performance so that they can make informed investment decisions," said Jina Choi, director of the SEC's San Francisco office. "Advisors who adjust their valuation processes to improve results violate their obligations to investors."
Laplanche, Dolan and the subsidiary accepted the settlement without admitting or denying the SEC's findings.
In a statement, Mr. Laplanche said he was "delighted to have reached an agreement with the SEC to solve the problems related to the lack of compliance." The current employer of Dolan did not immediately respond to a request for comment.
Loan club (LC) has been in limbo since 2016 when the company's board of directors began an investigation into Laplanche that resulted in his resignation as CEO and chairman. Several federal investigations of his behavior followed.
The SEC said it was not recommending accusations against LendingClub as a whole, as the company "promptly reported the misconduct of its executives" after the "Lundown". Board investigation and provided "extraordinary cooperation" during the investigation.
A Justice Department investigation into LendingClub is underway, but a settlement is expected shortly, according to a person familiar with the case who requested anonymity because she was not allowed to speak publicly about the discussions.
The company also continues to work on a resolution with the Federal Trade Commission, said this person.
In April, the FTC accused LendingClub of misleading customers, who were falsely told that the loans did not come with any "hidden fees". In fact, the company has deducted hundreds, even thousands of dollars in secret fees, said the regulator.
At the time, the Loan Club called the FTC's allegations "legally and factually unjustified."
LendingClub chairman Hans Morris said in a statement Friday that the company was "thrilled to have a resolution and a close" on the front of the SEC.
"The SEC's findings further support the Council's decision to take swift and decisive action" against Laplanche, Morris said. "We fully trust our new management team and we are a better company today."
Fintech has experienced difficulties since its launch in 2014. Since its IPO, LendingClub's shares have fallen by more than 70%. On Friday, his stock rose 1%.
CNNMoney (New York) First published on September 28, 2018: 5:28 PM ET
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