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Lending Club faces Justice Department probe

17 May 2016  |  4831 views  |  0 Wall street sign

After its CEO was forced out over a loans sale scandal, Lending Club says that it is being investigated by the US Justice Department and admitted that investors are pulling back from debt purchases.

In a regulatory filing, the online lending marketplace says that the Justice Department sent a grand jury subpoena seeking information on the day that founder and CEO Renaud Laplanche was forced to resign.

The Securities and Exchange Commission is also looking into the situation, which stems from an internal review which found that $22 million in near-prime loans were sold to an institutional investor that did not want them. The application date on $3 million of the loans was altered to make them look like they met the investor's requirements.

Laplanche also faced questions about an undisclosed investment he made in a company, called Cirrix, which buys Lending Club loans.

Meanwhile, major investors have either temporarily halted buying up loans "or are otherwise reluctant to invest" meaning that Lending Club is having trouble dealing with new loan applications and could have to start using its own balance sheet to fund them.

"We are actively exploring ways to restore investor confidence in our platform and obtain additional investment capital for the platform loans," says Lending Club, which has seen its shares fall nearly 50% in the last week.

Restoring confidence may take some time. As the bad news surrounding Lending Club mounts up, the company is also facing what may be the first of many Federal lawsuits by shareholders who allege that it failed to properly manage its internal operations to prevent questionable lending practices.

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