In May of 2016, LendingClub CEO Renaud Laplanche faced the most embarrassing outcome imaginable for a founder. He was forced to resign from the peer-to-peer lending company he had created, just 18 months after taking it public in a splashy debut that saw its shares soar 56 percent and its market cap hit an a stunning $8.5 billion.
Laplanche, said LendingClub’s board at the time, had taken out loans on the platform for himself and family members without being transparent about them. Laplanche reportedly also did not disclose a personal stake in an investment firm in which LendingClub had considered making an investment.
It was a stunning turn of events as they unfolded. Today, however, it looks like the biggest victim was not Laplanche, but 12-year-old LendingClub, whose market cap now hovers around $1.6 billion. Not only has Laplanche moved on to a new funding startup called Upgrade that he founded soon after leaving LendingClub and for which he has already raised $142 million from investors, but a two-year-long SEC investigation concluded Friday with a settlement that saw Laplanche neither admit nor deny wrongdoing. Instead, he agreed to pay a $200,000 fine and to be barred from the securities industry for three years.
The last will not, as you might imagine, impact his role as CEO of Upgrade. Though, Jina Choi, the longtime head of the SEC’s San Francisco unit, has called “barring people from their industries” one of the SEC’s most impactful remedies, in Laplanche’s case, the move seems to serve mostly as a public deterrent. The reason: It bars him from securities activities in which he is not currently involved. Specifically, Laplanche cannot now serve as registered investment advisor or a broker dealer or as municipal bond trader, but he isn’t doing any of these things at Upgrade, which purely manages institutional capital.
The SEC wrung a tougher settlement out of LendingClub Asset Management, an investment management unit of LendingClub and a registered investment advisor, which must pay a $4 million fine. Carrie Dolan, LendingClub’s former chief financial officer, has also agreed to pay a fine of $65,000.
As noted in an earlier report by The New York Times, the charges announced by the SEC don’t address the accusations that LendingClub had made against Laplanche. According to the agency, for example, a division of LendingClub under Laplanche’s management had adjusted how the funds were managed without telling investors. A source familiar with the compliance issue says there was an imbalance between three-year and five-year loans in a since-shuttered fund that was among several dedicated to investing in notes originated by the platform.
Laplanche declined to talk with us today about the settlement, instead emailing a statement that reads:
I am pleased to have worked out a settlement with the SEC to put to rest any issues related to compliance lapses that might have occurred under my watch at Lending Club. Consistent with SEC policy, I have agreed not to admit nor deny the specific narrative of the events contained in the settlement order.
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 through disciplined underwriting and exciting product innovation. With the benefit of my prior experience, I feel better equipped to establish a strong culture of compliance and effective internal controls under the supervision of capable professionals.
Laplanche did comment on the settlement that Tesla CEO Elon Musk reached with the SEC this past weekend, in which Musk agreed to step down as Tesla’s chairman and pay a $20 million fine after being charged with making “false and misleading statements” to investors on his Twitter account when he said he had secured funding to take the company private.
Musk, too, settled without admitting or denying the allegations of the complaint.
“I think it was the smart thing to do for him to take the settlement, rather than go through a long court battle,” said Laplanche. Seeming to draw a comparison between himself and Musk, Laplanche added: “He might have prevailed. But it could have taken another two to three years. Sometimes it’s better to settle, to admit no wrongdoing, and move on.”
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