Lending Club Chairman and CEO Renaud Laplanche has resigned after the company said an internal review revealed that he had violated company business practices. Investors started dumping the online lender’s stock immediately following the news, which also triggered multiple analyst downgrades.

Lending Club

Trading on Lending Club stock was extremely heavy this morning as more than 44 million shares had changed hands in just a few hours. The shares plummeted 26% to as low as $5.26 after the news was released.

Lending Club misplaces loan sales

The company said this morning that it misplaced sales of $22 million in near-prime loans to an investor in a manner that was against that investor’s instructions. Lending Club also re-dated an additional $3 million in loans. It also released its first quarter earnings report early this morning, posting $151.3 million in revenue and earnings of 1 cent per share. Adjusted EBITDA increased from 13.1% of revenue last year to 16.7% in this year’s first quarter. Additionally, the company pulled the guidance management had issued previously.

Lending Club’s internal review also uncovered another issue “involving a failure to inform the board’s Risk Committee of personal interests held in a third party fund while the Company was contemplating an investment in the same fund,” reports the Financial Times.

Lending Club downgraded by Stifel, Sterne Agee CRT

Sterne Agee CRT analyst Henry Coffee, Jr. and team said in a report this morning that they have downgraded Lending Club from Neutral to Underperform and slashed their price target from $8 to $5 per share. They had been concerned about the “durability” of the “market place” funding model employed by the company even before today’s news, and the news only increased their concerns.

Specifically, they were concerned about whether the marketplace could absorb the $6 billion to $8 billion in new funding that would have been needed to meet Lending Club’s plans for growth. They noted that although the first quarter earnings results were about as expected, there was also a decline in fundings from some of its “pockets of institutional,” although more funding from its bank network and self-directed retail investors partially offset this decline.

Stifel analyst Scott Devitt and team downgraded Lending Club from Buy to Hold and suspended their previous $22 per share price target. They said that previously they had put a lot of faith in the company’s management and their ability to build trust with both lenders and consumers and also execute on their plans to “build a multi-product suite of services on top of its initial unsecured lending platform.” Today’s news has shaken their “faith and trust.”

Also William Blair analysts suspended their rating on the company until more details on exactly what happened are released.