Online investing platform LendingClub Asset Management (LCA) and its former president Renaud Laplanche have been charged with fraud by the US SEC.
The fraud charge was made for improperly using fund money to benefit LendingClub Corporation, which is LCA’s parent company and founded by Laplanche.
A settlement has been agreed by the three parties involved, LCA, Laplanche and former CFO Carrie Dolan, which will see them pay over $4.2m in combined penalties – broken down these are $4m, $200,000, and $65,000, respectively.
Alongside this, Laplanche has been barred by the SEC from the securities industry – after three years he can apply for re-entry.
The SEC order states LCA offers investment advisory services to private funds which buy loan interests offered through the online lending marketplace LendingClub Corporation. According to the SEC, LCA caused one of its managed private funds to buy interest in loans which were at risk of not being funded, benefiting LendingClub, not the fund, breaching its fiduciary duty.
Also stated in the order is that LCA, Laplanche, and Dolan ‘improperly adjusted monthly returns for this fund and other LCA-managed funds to improve the returns they reported to fund investors.’
Chief of the SEC’s Complex Financial Instruments Unit Daniel Michael said, “Investment advisers have an obligation to put their clients’ interests ahead of their own. By using funds managed by LCA to benefit its parent company, LCA and Laplanche failed to do so.”
“Investors depend on fund advisers to give them the straight scoop on performance so they can make informed investment decisions,” said Jina Choi, Director of the SEC’s San Francisco Regional Office. “Advisers who adjust their valuation processes to boost results are in breach of their duties to investors.”
The SEC enforcement division chose not to recommend charges against LendingClub after it promptly self-reported its executives’ misconduct following a review started by its board of directors. LCA also reimbursed around $1m to investors which were impacted by the altered returns.
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