Former Morgan Stanley Chairman and Chief Executive Officer John Mack invested in the same venture that contributed to the departure of LendingClub Corp. CEO Renaud Laplanche.
The difference is that Mack, a LendingClub board member, didn’t know the company was weighing an investment in Cirrix Capital, and so wasn’t expected to disclose his holding, according to people with knowledge of the situation. Laplanche presented the idea of having LendingClub invest in the venture to the board’s risk committee, while failing to disclose his personal stake, the people said.
LendingClub subsequently bought a 15 percent limited-partnership interest in Cirrix this year for $10 million, regulatory filings show. That decision was approved by the risk committee and without the full board’s involvement, one of the people said.
Laplanche, 45, resigned Friday after an internal review faulted him for not informing the committee of his and Mack’s investment, said one of the people, who asked not to be identified discussing details of the internal probe. The investigation also found that LendingClub sold $22 million of loans to Jefferies Group that didn’t meet the investment bank’s criteria for purchase, another person said. The U.S. Securities and Exchange Commission’s enforcement unit also is reviewing LendingClub, people familiar with the matter said.
LendingClub declined 35 percent, the biggest drop since the company’s 2014 initial public offering, to close in New York at a record low of $4.62, extending its drop for the year to 58 percent.
Mack, who intends to remain on the board, had a 10 percent limited-partnership stake in Cirrix Capital as of Dec. 31 and Laplanche held 2 percent, according to filings and people with knowledge of the matter. Laplanche didn’t respond to messages seeking comment.
Cirrix is an entity managed by Andrew Hallowell’s Arcadia Funds LLC, which invests in online marketplace loans, including those from San Francisco-based LendingClub. Hallowell didn’t immediately return a message seeking comment about Cirrix.
LendingClub’s four-person risk committee, which approved the $10 million investment, is led by former Visa Inc. President John “Hans” Morris, who took over as executive chairman after Laplanche’s departure. The committee also includes ex-U.S. Treasury Secretary Lawrence Summers, Simon Williams, previously an executive at HSBC Holdings Plc, and Daniel Ciporin, a former MasterCard Inc. executive who’s a general partner of venture-capital firm Canaan Partners.
Funds with backing from Laplanche and Mack, 71, had acquired $139.6 million of whole loans and $34.9 million of interests in whole loans, LendingClub said in its annual proxy filing last month, without identifying the funds. The company paid $7.4 million in interest to the family of funds, while earning $636,000 in servicing fees and $357,000 in management fees from the funds, according to the proxy.
The terms “were not more favorable than those obtained by other third-party investors,” according to the filing. As of April 1, the company, Laplanche and Mack owned about 31 percent of Cirrix.
LendingClub said Monday that it’s working to fix “material weaknesses” over internal controls.