SoFi CEO Mike Cagney resigned Monday following sexual harassment accusations that began in early 2012.
Online lender Social Finance (SoFi), a six-year-old San Francisco-based startup on the cusp of an IPO, could be at risk of jeopardizing its public offering in the wake of the sudden resignation of its CEO amidst an unfolding sex scandal.
SoFi CEO Mike Cagney resigned Monday following sexual harassment accusations that began in early 2012 and rapidly escalated with a wrongful termination lawsuit this August and new allegations of loan improprieties and fraudulent accounting.
Besides exposing the company to further review from shareholders and the Securities Exchange Commission, the scandal, say experts, could delay or end a plan by SoFi to expand into banking services, like credit offerings and checking accounts.
“I want SoFi to focus on helping members, hiring the best people, and growing our company in a way consistent with our values,” wrote Cagney in a resignation letter published on the company’s blog. “That can’t happen as well as it should if people are focused on me, which isn’t fair to our members, investors, or you.”
In response to a request for comment, SoFi directed Inman News to Cagney’s blog post.
Rumors of sexually explicit text messages between a SoFi executive assistant and Cagney, a husband and father of two children, boiled over in 2012, when its board, notified of the allegations, determined no evidence of a sexual relationship existed, according to a report by the New York Times. In August, former loan originator Brandon Charles filed a California lawsuit alleging he was wrongfully terminated for reporting ongoing sexual harassment between executives and female employees.
Since then, current and former employees have alleged a slew of sexual improprieties between SoFi executives and underlings, including sex in bathrooms and parked cars, according to Dealbreaker, Recode and the Wall Street Journal. Investors, meanwhile, have complained about misstatements made by Cagney over student loan products, according to emails obtained by The New York Times.
Real estate companies listed as SoFI “partners,” including sales and marketing firm Polaris Pacific and the German brokerage Engel & Völkers, have yet to distance themselves from SoFi in the wake of Cagney’s resignation. In a statement, the New York-based online brokerage company Compass said its relationship with SoFi is confined to a 49-story condo development overlooking South Beach at 401 Harrison Street in San Francisco.
“Compass does not have a formal partnership with SoFi,” Compass spokesperson Julie Binder told Inman News in an email on Wednesday. “For The Harrison new development project in San Francisco, we provide buyers with a list of seven local mortgage lenders who have approved the building, and SoFi is on that list.”
Spokespeople for Polaris Pacific and Engel & Völkers did not immediately respond to a request for comment by a Wednesday afternoon deadline.
Launched in 2011, SoFi succeeded early by refinancing student loans at rates significantly lower than federal loan prices, but it branched out to mortgages two years later, specifically with loans geared to owner-occupied residences and secondary homes. Currently, it has funded $20 billion in student loans, personal loans and mortgages to more than 350,000 customers, according to company data.
Company officials, meanwhile, have filed applications with state and federal regulators to expand into credit cards and other financial services — an initiative that would require a bank charter and federal deposit insurance. Gaining that approval could prove more complicated following SoFi’s unraveling sex scandal.
“Part of what regulators look at are issues like reputational risk,” said Brian Knight, a senior research fellow at the Mercatus Center, who added that, since 2008, the FDIC has significantly slowed its approval process. “Some of the scandal surrounding SoFi could give regulators concern because of the risk that these allegations are born out and more allegations come to light — and that harms the company’s reputation to the point where people don’t want to do business with it.”
In April, employees were given the opportunity to unload a portion of their holdings in anticipation of the IPO, according to sources that spoke anonymously to CNBC in May. Shares were priced at $16.30, the source told CNBC. Plans for an IPO could be delayed until the SoFi controversy has died down.
Cagney will step down at the end of the year and investor Tom Hutton will replace him immediately as chairman of the company’s board, the Los Angeles Times reported.
“The compliance bar for companies to go public is much higher than in previous years, so things like pending litigation and accounting irregularities need to be clean,” David Zilberman, a venture capitalist at Comcast Ventures, told Inc. in 2014, shortly after Lululemon and American Apparel faced lawsuits before their own IPOs.
Sexual harassment claims aren’t new for technology startups, both in Silicon Valley and elsewhere. Uber, the ride-hailing app, parted ways with more than 20 employees, including its CEO Travis Kalanick, this year after former engineer Susan Fowler accused the company of fostering what she described as a culture of sexism.
After she accused the company’s human resources department of turning a deaf ear to complaints of harassment at the hands of a manager, several more employees filed separate complains alleging sexism and harassment. Kalanick resigned in June.
The chief executive of HR startup BetterWorks, a high-ranking engineer at Google, Amit Singhal, and several high-profile venture capitalists, including Justin Caldbeck of Binary Capital, have all resigned this year in the wake of harassment allegations.