Chief Executive of Social Finance, an Online Lending Start-Up, to Step Down

Social Finance, an online lender that is one of the more prominent financial technology start-ups, said on Monday that its co-founder and chief executive Mike Cagney planned to step down by the end of the year.

The resignation follows a lawsuit over claims of sexual harassment at the San Francisco-based start-up, which is known as SoFi. Several former employees said that Mr. Cagney, 46, had inappropriate relationships with SoFi employees, which helped foment a toxic workplace culture.

In addition, Mr. Cagney may have been overaggressive in expanding SoFi’s business, skirting risk and compliance controls, said people with knowledge of the situation, who asked not to be named because they were not authorized to speak publicly.

In a letter to employees, sent on Monday evening, Mr. Cagney wrote that “the combination of HR-related litigation and negative press have become a distraction from the company’s core mission.” Mr. Cagney is stepping down as both chief executive and chairman, and the company said it had begun a search to find a new chief.

SoFi joins a list of other technology start-ups that have also been dealing with workplace culture issues. This year, Uber, the ride-hailing company based in San Francisco, has grappled with claims of sexual harassment and questions over its business tactics, resulting in many of it senior leaders — including its chief executive, Travis Kalanick — leaving their positions. (Mr. Kalanick was not personally accused of sexual harassment.) Venture capitalists who finance start-ups have also faced questions over sexual harassment of women entrepreneurs in recent months.

The episodes have tarnished the image of Silicon Valley’s start-up ecosystem — which has long painted itself as a place of innovation, ideas and progressive workplaces — and it raises concerns about whether these start-ups and their investors operate under a sufficient number of checks and balances.

A spokesman for SoFi disputed the notion that the company had taken on too much risk in its business. The spokesman also said that the board investigated a dispute between Mr. Cagney, a married father of two, and a former employee in 2012, and it found no evidence of a romantic or sexual relationship. The company reached a settlement after the investigation.

Mr. Cagney did not immediately respond to an email requesting comment.

SoFi was founded in 2011 and began by offering online refinancing the loans of students. Since then, it has branched out to offer mortgages and personal loans, and it recently began the process of applying for a banking license. The privately held company, which is valued at more than $4 billion, has raised nearly $2 billion from investors, including SoftBank, Discovery Capital and Baseline Ventures.

For years, SoFi was heralded as a fast-growing start-up in the financial technology industry, known as fintech. But questions started to surface about the company’s workplace this year when SoFi was sued in August by a former employee at its main satellite office, in Healdsburg, Calif. The employee said that he had been fired after complaining about managers sexually harassing their subordinates. SoFi said this month that it was starting an investigation into the claims.

The lawsuit did not initially name Mr. Cagney, but he was later added as a defendant. He is accused in the lawsuit of “empowering other managers to engage in sexual conduct in the workplace.”

The chief executive has long been the touchstone of the company and its most central figure. According to interviews with more than 30 people familiar with the company, Mr. Cagney often overstepped personal and business boundaries. The people asked to stay anonymous because they were not authorized to discuss the matter publicly.

In 2012, for example, Mr. Cagney sent sexually explicit text messages to an executive assistant named Laura Munoz, according to five people who saw the messages or discussed them with Mr. Cagney and Ms. Munoz. Months later, the company and board agreed to pay Ms. Munoz a $75,000 settlement.

Ivo Labar, a lawyer representing Ms. Munoz, said matters were resolved between her and SoFi and declined further comment.

That same year, Mr. Cagney pursued a relationship with another employee, and three colleagues said they saw them holding hands.

The SoFi spokesman said that the company did not comment on personnel matters.

In SoFi’s loan business, at least one of the company’s initial products may not have been what it appeared. According to interviews, sales documents and correspondence between investors and company executives, the company said it had raised $90 million in debt financing for one of the loan products that it sold to investors in 2012.

That financing never took place. Some executives were upset about the misrepresentation to the company’s sales teams and to the investors. The issue was brought to the board, which made no changes.

SoFi eventually bought the loans back from investors. SoFi’s spokesman said that “no consumers were harmed in the process” of rectifying the situation.

In a statement on Monday, SoFi said it funded $3.1 billion in loans in the second quarter, producing more than $134 million in revenue. The company said it had lent more than $20 billion to more than 350,000 borrowers.

The company also said on Monday that Mr. Cagney would be replaced immediately as the company’s chairman by another board member, Tom Hutton, who is an early investor in SoFi.

Mr. Cagney, a native of the Philadelphia area, majored in economics at the University of California, Santa Cruz, before starting his career at Wells Fargo. After climbing the ranks to the trading desk there, he left to begin his own financial software company, and then his own hedge fund, Cabezon, in 2005. On the side, he attended the business school at Stanford.

SoFi was created in 2011 by Mr. Cagney and four co-founders, all of whom had been classmates at Stanford. From the beginning, Mr. Cagney clearly ran the show. But his behavior appeared to take a toll on the people around him, and his co-founders left the company one by one. Now, Mr. Cagney is set to follow them.

“I believe now is the right time for SoFi to start the search for a new leader,” Mr. Cagney said in a statement. “I could not be more proud of the company we’ve built together, and I look forward to passing the baton to a new C.E.O. who can continue SoFi’s mission of revolutionizing personal finance, helping our members to get ahead and find financial success.”

Loading...
loading...

Comments

comments