LENDINGCLUB founder Renaud Laplanche’s efforts to dismiss shareholder lawsuits have been rejected by a federal judge.
Investors in the US peer-to-peer lending giant had accused the former chief executive of concealing material weaknesses in LendingClub’s ability to monitor its operations, reported Reuters.
The decision by US District Judge William Alsup in San Francisco enables shareholders to pursue most of their claims. They argue that LendingClub misled them into thinking its internal controls were strong enough to stop dubious practices, but instead the firm’s market value plummeted by several billion dollars as soon as the truth came out.
Alsup reportedly said it was “difficult” for Laplanche to avoid the “strong inference” that he intended, before his departure, to mislead investors about LendingClub’s controls.
“He had engaged in self-dealing to inflate loan-origination numbers and he had inflated the assets of subsidiaries of LendingClub before the IPO – both issues involving financial reporting,” Alsup wrote, as cited by the Reuters article.
“No competing inference is more reasonable than concluding that CEO Laplanche knew that some material weaknesses in internal controls over financial reporting persisted,” he added.
Laplanche left the company he had founded last May, after it emerged that employees had falsified information about loans and that he and his family members had taken out loans to boost volumes before a major capital raise.
A spokeswoman for the San Francisco-based company declined to comment to Reuters. Lawyers for Laplanche did not immediately respond to Reuters’ requests for comment.
LendingClub has been making efforts to turn around its performance after a challenging 2016 when it made a loss for the third consecutive year.
“2016 was a year of investment in the company,” said Tom Casey, chief financial officer for Lending Club, at the time of the full-year results.
“We developed better internal processes, stronger controls, and a diversified investor base that will help us compete in the future.
“Going forward, we are beginning to redeploy resources into areas of the business that will drive long term growth and value creation.”
Read more: LendingClub hires Thomas Casey as CFO