Home > News > Regulation > SEC Charges LendingClub with Misleading Investors
Regulation

SEC Charges LendingClub with Misleading Investors

Firm fined $4 million as former president accepts three-year ban from securities industry.

By Michael Katz

The SEC has charged LendingClub Asset Management (LCA), and its former president, Renaud Laplanche, with fraud for allegedly improperly using fund money to benefit its parent company, LendingClub Corp.

The two, along with former LendingClub Corp. Chief Financial Officer Carrie Dolan, were also charged with improperly adjusting fund returns. They agreed to settle the agency’s charges against them, and will pay more than $4.2 million in combined penalties, while Laplanche was barred from having any association with the securities industry for at least three years.  

The SEC said LCA and Laplanche instructed one of its private funds to purchase interests in loans that were at risk of going unfunded on the LendingClub platform, which would have deprived the company of revenue it could otherwise earn. Because the move was made to benefit LendingClub Corp., and not the fund, the company was in breach of its fiduciary duty, according to the SEC’s order.

The SEC also said LCA, Laplanche, and Dolan improperly adjusted monthly returns for LCA-managed funds to improve the returns they reported to fund investors.

For more stories like this, sign up for the CIO Alert newsletter.

According to the SEC’s order, LCA marketed its services as an investment adviser that would diversify the holdings of the private funds it managed across several LendingClub loans. Each fund had a different risk strategy, but all were created to invest exclusively in LendingClub loans.

However, in late 2015, returns on loans began to decline, which put pressure on the profitability of the funds because they were invested in LendingClub Corp. loans. It also made it more difficult for LCA to attract new investors and retain existing investors, which the SEC said was important for LendingClub because the more assets LCA had to invest, the more interests in loans it could purchase on the LendingClub platform.

“Investment advisers have an obligation to put their clients’ interests ahead of their own,” Daniel Michael, head of the SEC’s Complex Financial Instruments Unit, said in a release.  “By using funds managed by LCA to benefit its parent company, LCA and Laplanche failed to do so.”

To settle the SEC’s charges that they violated the antifraud provisions of the Investment Advisers Act of 1940, LCA, Laplanche, and Dolan agreed to pay penalties of $4 million, $200,000, and $65,000, respectively, but did so without admitting or denying the allegations.

The SEC said it did not recommend charges against LendingClub Corp. in recognition of the “extraordinary cooperation” the firm provided the investigation, which it said promptly self-reported the misconduct after a review initiated by its board of directors. The regulator said the “extensive remediation and cooperation” included providing compensation to fund investors, and significantly modifying its management structure to provide greater independence.

The order says that LCA reimbursed approximately $1 million to investors who were adversely impacted by the improperly adjusted monthly returns.

Tags: , , ,

Home > News > Risk > Yale, Brown, Duke, Michigan State Earn Double-Digit Returns
Risk

Yale, Brown, Duke, Michigan State Earn Double-Digit Returns

Endowments surpass median, mean returns for colleges and universities.

By Michael Katz

The investment portfolios for the endowments of Yale, Duke, Brown, and Michigan State universities reported double-digit gains for fiscal year 2018, earning 12.3%, 13.2%, 12.9%, and 11.1%, respectively, and easily beating Cambridge Associates’ preliminary mean and median returns for colleges and universities of 8.5% and 8.3%, respectively.

Yale’s endowment earned a 12.3% investment return (net of all fees) for the year ending June 30, boosting its total value to an all-time high of $29.4 billion from $27.2 billion at the same time last year.

The endowment returned 7.4% and 11.8% per year over the 10- and 20-year periods ending June 30. Domestic equities returned 12.4%, beating its benchmark by 2.2%, while foreign equities returned 14%, outperforming its composite benchmark by 10.6%.  Venture capital and leveraged buyouts returned 16% and 10.2%, respectively, while real estate and natural resources contributed annual returns of 2.7% and 1.7%.

Duke University reported that its endowment’s long-term investment portfolio returned 12.9% for the fiscal year ended June 30, to help raise the fund’s total asset value to a record high of $8.5 billion, up from $7.9 billion at the same time last year. The endowment has nearly doubled since the financial crisis of 2008-2009, when it was valued at $4.4 billion.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

“So the economy is obviously doing much, much better,” Jack Bovender, chairman of the board of trustees, said at the board’s most recent meeting, according to Duke’s student newspaper, The Chronicle. “Stock prices have gone up significantly. The Dow Jones has gone up significantly, and so has our returns.”

Duke’s endowment had three- five- and 10-year annualized returns of 7.4%, 9.2%, and 6.6%, respectively, according to Bloomberg News.

Brown University’s endowment produced a 13.2% return for the fiscal year, surpassing its benchmark of 9.7%, and raising its value to an all-time high of $3.8 billion.

The three-, five-, 10-, and 20-year annualized returns for Brown’s endowment are 8.3%, 9.2%, 5.9%, and 8.3%, respectively.

“We are fortunate both to partner with outstanding investment managers who navigate the markets skillfully and to be guided by an Investment Committee of exceptionally knowledgeable investors,” Brown CIO Jane Dietze said in a release.

And the investment portfolio for Michigan State University’s endowment returned 11.1% for the fiscal year ended June 30 to bring its total asset value up to more than $2.9 billion. The endowment also reported three-, five-, and 10-year annualized returns of 7.2%, 8.4%, and 6.0%, respectively.

“While our public equity and hedge fund portfolios beat their respective benchmarks, performance was driven by strong returns in our private equity and private real estate portfolios,” Michigan State University CIO Philip Zecher said in a release.

Tags: , , , , , ,

«