Online lending platform Lending Club Corp. said CEO Renaud Laplanche had resigned after an internal probe found that $22 million of near-prime loans were sold to an investor on terms that didn't comply with the investor's instructions.
Lending Club's shares fell 26.5 percent to $5.22 in early trading, valuing the company at about $2 billion, compared with $9 billion when the company went public in December 2014.
It was unclear if Laplanche, also the founder of Lending Club and its chairman, was involved in what the company said was a violation of its business practices or if he resigned because the lapse occurred on his watch. The company declined to comment beyond its statement on Monday.
Lending Club also said that three senior managers had resigned or were fired in connection with the probe.
Laplanche, a French entrepreneur, is one of the most high profile names in the nascent online lending industry.
Lending Club, which operates an online platform that matches borrowers with lenders, was the first of its kind to go public and attracted some top names to its board, including former U.S. Treasury Secretary Larry Summers.
Up to Friday's close, Lending Club's shares had fallen about 29 percent since the start of the year as the market for alternative lending shows signs of weakness.
The company's stock is heavily shorted, with more short interest against it than 91 percent of all other companies on the U.S. market, according to Thomson Reuters data.
Other platforms such as On Deck Capital Inc. have reported slow investor appetite for lending.
Lending Club also said it had identified material weaknesses in its financial reporting and would ask the Securities and Exchange Commission to extend the filing date for its quarterly report.
The company said it would not provide guidance on its financial results.
Lending Club named President Scott Sanborn interim CEO and director Hans Morris executive chairman.
Morris said Lending Club repurchased the loans in question at par in early April and resold them at par to another investor.
"We also discovered during the investigation that a senior manager at Lending Club made a change in the application date of approximately $3 million of these loans," he said on a conference call.
Lending Club also said some employees had not informed the board of personal investments in a third-party fund at a time when the company was contemplating an investment in that fund.
The company reported a profit of $4.1 million, or 1 cent per share for the first quarter ended March 31, compared with a loss of $6.4 million, or 2 cents per share, a year earlier.
Total net revenue jumped 88 percent to $152.3 million.
(Reporting by Sudarshan Varadhan and Richa Naidu in Bengaluru; Editing by Ted Kerr and Sayantani Ghosh)