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LendingClub nixes guidance amid improper loan sale fallout


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LendingClub nixes guidance amid improper loan sale fallout

A board member ledthe company's earnings call in an attempt to calm investors and stop the company'sstock slide followingthe news that Chairmanand CEO Renaud Laplanche had resigned amid an improper loan sale.

HansMorris, chairman of the risk committee and just appointed to the newly created roleof executive chairman, emphasized that the company self-reported the violationsand conducted a full investigation.

Duringthe call, Morris suggested Laplanche failed to fully cooperate with the self-investigation.

"Aviolation of the company's business practices, along with a lack of full disclosureduring this review, was unacceptable to the board," Morris said during thecall.

Froma financial perspective, the loan sale will have minimal impact, Morris said. Thecompany repurchased the $22 million of loans at par and was able to sell to anotherinvestor at par.

But withinvestors' trust in LendingClub's platform tested, management declined to offerfull-year guidance.

Laplancheresigned following the sale of $22 million worth of loans that had not met the investors'criteria. A review of the loans was kicked off when the company found an employeehad altered the date of loan application for $3 million worth of loans. Further,a member of management failed to disclose an interest in a third-party fund in whichthe company was considering an investment. The review did not uncover any otherinstances of loan data manipulation.

Duringthe question-and-answer portion, an analyst asked about other resignations of seniorexecutives, but Morris declined to comment.

The earningscall, moved up nine hours early due to the news, featured several questions fromequity analysts regarding the news. The burgeoning digital lending industry hasbeen beset by questions over whether it can find sufficient investors to buy theloans originated on their consumer-friendly platforms. Institutional investors willoften sign agreements with digital lenders to buy loans that fit certain criteria.

At onepoint, an analyst asked how confident management was in the company's internal controlsto prevent another case of misrepresented loan data.

"Weare confident, actually, that there is no chance that loan data can be changed,"Morris said, again emphasizing that the company found the errors. "And we aremanaging our internal processes to ensure our investors are always getting the loansthat they expect to be getting."