The CEO of fintech company Lending Club is stepping down and now the stock is crashing

Renaud Laplanche, lending club, sv100 2015Brian Ach/GettyRenaud Laplanche, former CEO of Lending Club.

Lending Club CEO Renaud Laplanche is stepping down from his position with the company after an internal review.

In pre-market trade on Monday following the news shares of the company were down as much as 28%.

In a statement Monday morning, Lending Club said, Laplanche would step down after, “an internal review of sales of $22 million in near-prime loans to a single investor, in contravention of the investor’s express instructions as to a non-credit and non-pricing element, in March and April 2016.”

Lending Club president Scott Sanborn will take over the CEO role.

This announcement also comes as part of the company’s first quarter earnings report, which saw profits miss expectations on revenue that topped estimates.

Lending Club earned $0.01 per share during the quarter, less than the $0.05 that was expected, according to estimates from Yahoo Finance.Revenues totaled $151.3 million, better than the $148.2 million that was forecast by analysts.

Sanborn called the first quarter market conditions an “increasingly challenging investor environment.”

As a result of the company’s review which unearthed Laplanche’s sale, Lending Club declined to give guidance on future results.

A report in The Wall Street Journal on Monday noted that Lending Club had beat earnings expectations in each quarter since going public in 2014 and often raised guidance.

The Journal also noted, however, that the company — along with many others in the fintech space — were coming under increased scepticism from investors who had valued these firms as tech companies though they may be closer to traditional lenders.

Additionally, Lending Club and others in the space have yet to see a full credit-tightening cycle and it’s unclear how the firms will handle tougher standards for borrowers.

Here are the full details from Lending Club on its board review that led to Laplanche’s removal:

Lending Club conducted a review, under the supervision of a sub-committee of the board of directors and with the assistance of independent outside counsel and other advisors, regarding non-conforming sales to a single, accredited institutional investor of $22 million of near-prime loans ($15 million in March and $7 million in April). The loans in question failed to conform to the investor’s express instructions as to a non-credit and non-pricing element. Certain personnel apparently were aware that the sale did not meet the investor’s criteria.

In early April 2016, Lending Club repurchased these loans at par and subsequently resold them at par to another investor. As a result of the repurchase, as of March 31, 2016, these loans were recorded as secured borrowings on the Company’s balance sheet and were also recorded at fair value. The financial impact of this reporting is that the Company was unable to recognise approximately $150,000 in revenue as of March 31, 2016, related to gains on sales of these loans.

The review began with discovery of a change in the application dates for $3.0 million of the loans described above, which was promptly remediated. The board also hired an outside expert firm to review all other loans facilitated in the first quarter of 2016 and the firm did not find changes to data in these or other Q1 loans.

The review further discovered another matter unrelated to the sale of the loans, involving a failure to inform the board’s Risk Committee of personal interests held in a third party fund while the Company was contemplating an investment in the same fund. This lack of disclosure had no impact on financial results for the first quarter.

Given the events above, the Company took, and will continue to take, remediation steps to resolve the material weaknesses in internal control over financial reporting identified in the first quarter of 2016 — one related to the sales of non-conforming loans and the other to the failure to disclose the personal investment interests — and to restore the effectiveness of its disclosure controls and procedures. These remediation steps included the termination or resignation of three senior managers involved in the sales of the $22 million of near-prime loans.

Lending Club will file an extension request with the Securities and Exchange Commission to file its quarterly report on Form 10-Q for the first quarter on or prior to May 16, 2016.

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