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October 05, 2018 at 10:43 AM
The Securities and Exchange Commission charged San Francisco-based LendingClub Asset Management and its former president Renaud Laplanche with fraud for improperly using fund money to benefit LendingClub Corp., LendingClub Asset Management’s parent company that Laplanche founded and for which he was CEO.
LendingClub Asset Management and Laplanche, along with Carrie Dolan, LendingClub Asset Management’s former chief financial officer, also were charged with improperly adjusting fund returns. All three have agreed to settle the agency’s charges against them and will pay more than $4.2 million in combined penalties. The SEC also barred Laplanche from the securities industry.
“Investment advisers have an obligation to put their clients’ interests ahead of their own,” said Daniel Michael, chief of the SEC’s Complex Financial Instruments Unit. “By using funds managed by [LendingClub Asset Management] to benefit its parent company, [LendingClub Asset Management] and Laplanche failed to do so.”
According to the SEC’s order, LendingClub Asset Management (formerly known as LendingClub Advisors LLC) provides investment advisory services to several private funds that purchase loan interests offered by LendingClub Corp., a publicly traded online marketplace lending company.
LendingClub Asset Management and Laplanche caused one of the private funds it managed to purchase interests in certain loans that were at risk of going unfunded, to benefit LendingClub, not the fund, in breach of LendingClub Asset Management’s fiduciary duty. The order also finds that LendingClub Asset Management, Laplanche and Dolan improperly adjusted monthly returns for this fund and other LendingClub Asset Management-managed funds to improve the returns they reported to fund investors.
According to Jina Choi, director of the SEC’s San Francisco Regional Office, “investors depend on fund advisors to give them the straight scoop on performance so they can make informed investment decisions. Advisers who adjust their valuation processes to boost results are in breach of their duties to investors.”
The SEC’s order finds that LendingClub Asset Management, Laplanche and Dolan each violated the antifraud provisions of the Investment Advisers Act of 1940. To settle the SEC’s charges, LendingClub Asset Management, Laplanche and Dolan agreed to pay penalties of $4 million, $200,000, and $65,000, respectively. Laplanche also agreed to a securities industry bar and investment company prohibition.
The SEC’s order permits Laplanche to apply for re-entry after three years. LendingClub Asset Management, Laplanche, and Dolan agreed to the entry of the SEC’s order without admitting or denying the findings.
The SEC’s Enforcement Division did not recommend charges against LendingClub Corp., which promptly self-reported its executives’ misconduct following a review initiated by its board of directors, thoroughly remediated, and provided extraordinary cooperation with the agency’s investigation. LendingClub Asset Management also reimbursed approximately $1 million to investors who were adversely impacted by the improperly adjusted monthly returns.
Credit Suisse to Pay $10M Over Handling of Retail Customer Orders
The Securities and Exchange Commission announced that Credit Suisse Securities has agreed to settle charges brought by the SEC and the Office of the New York Attorney General regarding material misrepresentations and omissions made in connection with its now-closed Retail Execution Services business’ handling of certain customer orders.
The settlements require Credit Suisse to pay $5 million to the SEC and $5 million to the New York Attorney General for a total of $10 million.
“Market makers that handle retail orders must be transparent with their customers about how orders will be executed and how the market maker will profit from their customers’ trades,” said Marc Berger, director of the SEC’s New York Regional Office, in a statement. “The settlement holds Credit Suisse accountable for failing to accurately disclose important information about the nature and quality of its execution of trades for retail investors.”
According to the SEC’s order, Credit Suisse created the Retail Execution Services desk to execute orders for other broker-dealers that handle order flow on behalf of retail investors.
The SEC finds that although Retail Execution Services promoted its access to dark pool liquidity to customers, the firm executed an exceedingly minimal number of held orders — orders that must be executed immediately at the current market price — in dark pools from September 2011 to December 2012.
The SEC’s order also finds that although Credit Suisse touted “robust” and “enhanced” price improvement on orders, the Retail Execution Services’ computer code treated orders for which execution quality is required to be publicly reported differently from orders for which execution quality is not publicly reported.
From mid-2011 to March 2015, retail customers did not receive any price improvement from Retail Execution Services on their nonreportable orders, which Credit Suisse failed to disclose, according to the SEC. The SEC also finds that for these nonreportable orders, Retail Execution Services disproportionately used a routing tactic that generally caused market impact and resulted in less favorable execution prices for customers, despite claiming to benefit these customers. The use of this routing tactic provided Retail Execution Services an opportunity to profit from its execution of the final portions of those customer orders internally.
Credit Suisse consented to the SEC’s order without admitting or denying the findings.
SEC Charges Former Texas State Senator, CEO With Securities Fraud
