(CN) - LendingClub has lost nearly $100 million due to expenses stemming from its CEO's resignation in 2016 on the heels of an accounting scandal, shareholders claim in a derivative action.
Two shareholders, Jay Fink and Kelvin Farley, filed a derivative action against current and former LendingClub directors, including former CEO Renaud Laplanche, and former CFO Carrie Dolan in Delaware Chancery Court.
Both Laplanche and Dolan resigned in 2016 after it was revealed that LendingClub had sold a single investor $22 million in near-prime loans, in direct contravention of that investor's express investment criteria, and the company tried to hide the error by changing the dates for some of those loans.
In addition, the online peer-to-peer lender improperly inflated asset values for six private investment funds managed by a subsidiary, and investors learned that Laplanche and his family members had invested in 32 loans made through LendingClub in order to increase its loan volume.
On the news of Laplanche's resignation in May 2016, the company's share price plummeted 26 percent to $4.70, hitting a low of $3.50 a few days later. Just a year and a half prior, when it went public in 2014, LendingClub shares hit $27.98, but to date, its value has not substantially recovered.
"The company has recorded nearly $100 million in expenses attributable to the individual defendants wrongdoing, and their breaches of their fiduciary duties have exposed the company to substantial liability in private securities class actions," the complaint states.
The investors seek to recoup the expenses the company has and will continue to incur if LendingClub is found liable in class action litigation against it as a result of the directors' conduct.
They claim that "the individual defendants breached their fiduciary duties to LendingClub by failing to institute adequate internal controls regarding financial disclosures, related party transactions, and data integrity and security, all while causing LendingClub to represent in the Registration Statement and a series of subsequent filings that such controls were sufficient."
The investors are represented by Carmella P. Keener with Rosenthal, Monhait & Goddess in Wilmington, Delaware, along with Of Counsel Robert C. Schubert with Schubert, Jonckheer & Kolbe in San Francisco.
"While this may be a new lawsuit it is not a new matter. This 'new' complaint was filed on August 18, 2017 by 2 law firms on behalf of two purported shareholders is the same as the existing litigation already pending in Delaware Chancery Court, Steinberg et al v. Morris et. al., Case number C.A. No. 12984-CB. Proceedings in the Steinberg matter have been proceeding since 2016 when the matter was originally filed. LendingClub anticipates that the cases will ultimately be consolidated," Brandon Pace, Senior Vice President Legal at LendingClub told Courthouse News in an emailed statement.