Raging Capital Reveals New Long Position (CAVM) and Discusses 3 Short Positions (VRX, LC, PMTS) in Q2 Letter to Investors

Raging Capital Discusses LendingClub Corp (NYSE:LC) Short

LendingClub Corp (NYSE:LC), the San Francisco-based peer-to-peer lender, has seen its market capitalization plunge by 57% since the beginning of the year. In May, the shares of the online lending marketplace operator tumbled after the company announced that its former CEO, Renaud Laplanche, was forced to resign due to an internal company review that revealed irregularities in the sale of $22 million in near-prime loans to a single investor. The online lender also found that the former CEO and his family members used LendingClub’s platform to take out dozens of loans in late-2009 to help the company’s loan volume reach analysts’ expectations. In the fresh quarterly letter to investors, Mr. Martin said: “It appears LC was playing games to hit its numbers and possibly to make up for a shortfall in high-FICO score loan obligations.” The individual ethical issue associated with the company’s irregularities in the sale of the $22 million in loans “was not part of our original short thesis,” but it represents “a symptom of the broader issues LC faces.” The lack of differentiation in a highly-competitive market with increasingly picky investors was one of the reasons behind the LendingClub short. Vy Capital, started by Alexander Tamas, has 4.50 million shares of LendingClub Corp (NYSE:LC) among its holdings at the end of the second quarter.

Raging Capital Comments on CPI Card Group Inc. (NASDAQ:PMTS) Short

Chip card maker CPI Card Group Inc. (NASDAQ:PMTS) was the largest short contributor to Raging Capital’s performance during the second quarter, as the company significantly lowered its full-year guidance in mid-May due to larger than anticipated un-issued card inventories at large issuers, as well as evidence of slower than anticipated conversions for small- to mid-sized issuers. The shares of the provider of comprehensive Financial Payment Card solutions in North America are down by 57% year-to-date. Mr.  Martin and his team said the following about their short position in CPI Card Group in the quarterly letter to investors:

“PMTS benefited in 2014 and 2015 from a one-time surge in MV-enabled credit and debit card manufacturing in order to meet compliance deadlines. Amid this boom, PMTS’ private equity backer did what can be expected: After first failing to sell the company, they chose to lever up the balance sheet to pay themselves a large dividend before pushing out an IPO (at any price) in October 2015.

Now that the rush to meet deadlines is past, PMTS’ business has normalized and many card issuers have even found themselves with excess inventories. As a result, volumes for PMTS are drying up and margins are collapsing. PMTS missed Q I, and we believe its new guidance, particularly in the second half of 2016, is as disingenuous as its prior guidance. Further, the company’s misleading and self-interested dividend policy (designed, in our opinion, to prop up the stock) only enhances the possibility that PMTS ultimately goes to zero. Thus, even though its equity has been more than cut in half, we have added to our short position.”

Disclosure: None