Things have gone from bad to worse for Lending Club, but at least the company is admitting it. The company filed an update to its first quarter results with the U.S. Securities and Exchange Commission this week, and in that filing, it states that it has received a subpoena from the Department of Justice. Lending Club also reports that it is beginning to feel the burn from investors that are starting to pull back from its platform as a result of the problems that were reported earlier this month.

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Shares of Lending club tanked by as much as 11.42% in intra-day trading today, falling as low as $3.49.

Lending Club faces funding headwinds

In a report dated May 17, Morgan Stanley analyst Vasundhara Govil and team said the latest 10-Q hints that the company may have to turn to its own balance sheet to buy funds for now. They said Lending Club has regulatory commitments to buy “loans solicited by direct mail or other purchase obligations.” The company stated in the filing, that as of May 16, no loans were unfunded; however, it also said that investors representing a “significant” amount of funding on its platform have hit the pause button on making investments on it. This is why Govil believes Lending Club might have to use its own cash to buy loans in order to fulfill its regulatory commitments.

The Morgan Stanley team explained that the loans which fall under the commitments include Pool B loans or those originated by Springstone. They also point out that Lending Club had a purchase agreement in place with three investors to buy Pool B loans, but that agreement expired in January, which means this gap was already large.

The company stated in its 10-Q that as it seeks to restore the confidence of investors, it might look into alternative structures or terms like “equity or debt transactions, alternative fee arrangements, or other inducements including equity,” Morgan Stanley’s report explains.

DoJ subpoenas Lending Club

The 10-Q filing also reports that a grand jury has subpoenaed the company in connection with a Department of Justice probe in the wake of its May 9 earnings announcement and the disclosures that have burned its stock since then. The comments on this particular topic were very light, although Lending Club also said it contacted the Securities and Exchange Commission. There were media reports recently stating that the agency might be investigating the disclosures, so it doesn’t come as much of a surprise that the company contacted it.

Management said they plan to cooperate with both the DoJ and the SEC, but the Morgan Stanley team noted that both cases will be an overhang for the company’s stock until more information is released.

Increased obligations for loan repurchases

The company also stated in its filing that in the past, it was only obligated to repurchase loans in verified cases of identity theft. However, because of investor interest pertaining to the securitization of loans purchased on its platform, it has added to the circumstances. Also it now requires proof of economic harm, putting it in line with the standards for the institutional loan market.

The filing also states that in the event of the sale of loans to an investor that don’t meet the investor’s requirements at the time they are issued, Lending Club must buy back the loans at par. One of the problems the company disclosed earlier this month was a case exactly like this with one investor. The other big issue related to disclosures related to a potential conflict of interest.

The company also increased its expected loan loss rate to 11.6% from 10% over the last six quarters. The Morgan Stanley team noted that there have already been other data points from the industry that are causing some investors to worry about the deterioration of credit in general, and they believe this increase will only serve to increase those concerns.