Fintech conflicts of interest may hurt start-ups

LendingClub CEO misled internal probe - DJ

Financial technology executives' disclosure of potential conflicts of interest may come back to bite the entire online lending business, industry sources say.

Start-ups have piled up heady valuations and generated billions in loans, but now investors, industry experts and even regulators, have called for greater transparency.

LendingClub's former CEO, Renaud Laplanche, turned into an overnight poster child for reported conflict of interest issues in the online lending business. What is less clear, is whether other industry executives have ties to hedge funds that buy loans originated by the lenders. Now, some see the need for fintech executives to simplify their relationship networks.

"There are definitely eye-catching conflicts of interests on boards with far too much regularity," said Class V Group partner Lise Buyer, who consults with pre-initial public offering start-ups. "I do think that sitting on multiple boards in the same industry does raise issues. People too often look the other way, but it's not always black and white."

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There is evidence the LendingClub scandal has already come home to roost in the fintech industry. Some of the buyers of LendingClub loans have hit pause on their relationship with the company, according to a Wall Street Journal report Tuesday. Next, according to sources, there is worry that the flow of capital into the marketplace lending arena could be choked off, which may lead to rising prices for borrowers.

"There is going to be a slowdown in the growth of the lending space," said Schwark Satyavolu, a general partner at Trinity Ventures who is focused on fintech investing. "The dampening of access to capital isn't purely due to compliance issues," he added, saying the industry is experiencing a "tightening of access to capital."

Laplanche wasn't the only LendingClub executive with a stake in Cirrix Capital, a fund that bought his company's loans.

On top of his role at other fintech start-ups, ex-Morgan Stanley CEO John Mack serves on LendingClub's board of directors. Like Laplanche, Mack also has a stake in Cirrix Capital, according to a Bloomberg report. He's also an investor in PeerIQ, a start-up that tracks and evaluates securitized marketplace loans. An announcement from New York-based PeerIQ highlighted that Mack, along with venture firm Uprising, led a $6 million round of funding in the company last year.

Read MoreLendingClub board lost trust in CEO amid probe: Sources

PeerIQ says Mack is not on the company's board. The start-up declined to identify any of the members of its board of directors when asked to comment, and none are listed on its website. A representative for the company declined to say whether Mack disclosed to PeerIQ that he owned a stake in Cirrix Capital.

Lending Club CEO out

PeerIQ also counts Victory Park Capital among its backers. Victory Park has been an investor in numerous online lenders' debt financings — which support loans issued by start-ups — and separately in the equity of the start-ups. A representative for PeerIQ said Victory Park does not have a board seat with the company.

While its director slate remains closely guarded information at PeerIQ, other start-ups are more transparent. Kabbage, which lists its directors online, does not count anyone from Victory Park among its board. Among other companies backed by Victory Park are Avant and CommonBond. However, according to a source familiar with the firm's investments, Victory Park holds no director roles at any of the fintech start-ups.

Read MoreLendingClub founder's abrupt departure tarnishes emerging industry

The convergence of fintech and traditional banking has brought with it the likelihood some companies will have to manage potential conflicts of interest. Often Washington, D.C., veterans like Sheila Bair, Arthur Levitt or Larry Summers are coveted by companies looking to bolster their reputations with a well-known name on Wall Street. The same goes for countless banking industry veterans, like Mack.

In the fallout from LendingClub's shake-up, some say the Wall Street veterans need to more carefully manage their network of relationships.

"To earn your keep as a director and to fulfill your fiduciary obligations, you keep away from obligations that create a conflict of loyalty or time commitment," said Erik Gordon, clinical assistant professor at the University of Michigan's Ross School of Business. "You fully disclose any relationship that might create a conflict of interest."

— CNBC's Ari Levy contributed to this report.