Claims of ‘frat house’ culture loom over firm
Behaviour went unchecked until Monday, when board of U.S. online lender acted
SAN FRANCISCO— For months, the text messages came. Some were flirtatious, asking her to meet him late at night. Sometimes, the texts were sexually explicit.
The messages were directed at Laura Munoz, an executive assistant at the online lending startup Social Finance. The texts were from her boss, Mike Cagney, the company’s chief executive, according to five people who spoke with Munoz or saw the messages. Given Cagney’s stature at Social Finance, known as SoFi, Munoz was at a disadvantage.
That became apparent when SoFi’s board was informed of Cagney’s communications with Munoz in late 2012. The board said it found no evidence of a sexual relationship. Munoz was then paid about $75,000 (U.S.) to leave the company, according to three people familiar with the proceedings who spoke on the condition of anonymity because they were not authorized to talk publicly. Ivo Labar, a lawyer representing Munoz, said matters were resolved between his client and SoFi.
Around the same time, SoFi’s board and executives also heard complaints from investors that Cagney had made misstatements to them over the startup’s student loan products, according to emails between investors, executives and the board that were obtained by The New York Times. Directors stood by Cagney in that instance, too. The board’s support allowed Cagney to build SoFi into a fastgrowing startup that is trying to take on the big banks by offering lending, insurance and asset management online. The company has been val- ued at more than $4 billion.
But within SoFi, Cagney, a married father of two, continued to raise questions among employees with his behaviour. He was seen holding hands and having intimate conversations with another young female employee, according to six employees who saw the two together. At latenight gatherings with colleagues, he bragged about his sexual conquests and the size of his genitalia, said employees who heard the comments.
Cagney’s actions were echoed in other parts of SoFi. The company’s chief financial officer talked openly about women’s breasts and once offered female employees bonuses for losing weight, according to more than a dozen people who heard his comments. Some employees said that on a few instances, they caught colleagues having sex with supervisors at SoFi’s main satellite office in Healdsburg, Calif., which was the subject of a sexual harassment lawsuit filed last month.
Even as other Silicon Valley companies have been in the spotlight this year for inappropriate treatment of women, Cagney’s case goes a step further. Although many of the issues at other firms stemmed from midlevel executives or investors, Cagney personally faces questions about his role. His conduct was described by more than 30 current and former employees, most of whom asked to remain anonymous for fear of retribution.
The behaviour went largely unchecked until Monday, when SoFi’s board acted after weeks of growing scrutiny of the company. The startup said Cagney, 46, would leave as chief executive by the end of the year and that he would step down immediately as chairperson. In a statement announcing Cagney’s departure, SoFi did not explain the change.
A SoFi spokesperson said the company did not comment on personnel matters and disputed that its business had taken on too much risk. Through the spokesperson, Cagney also said he “vehemently denies” any improprieties at after-hours events with colleagues.
Yet Cagney’s position had become increasingly delicate after the filing of the sexual harassment suit, which accused him of “empowering other managers to engage in sexual conduct in the workplace.”
His situation was also exacerbated by claims about his approach to SoFi’s business, which uses money from Wall Street investors to fund student loans, personal loans and mortgages. At several points, Cagney ignored warnings from colleagues that he was being too aggressive with the business, according to more than a dozen employees who were involved in the conversations.
SoFi’s board, which includes representatives of the conglomerate SoftBank and influential hedge fund Third Point Capital, now faces questions about whether it needed more checks and balances on Cagney.
Companies such as SoFi show how boards are incentivized to prioritize cash flow and growth over governance, said David F. Larcker, a professor at Stanford University’s Graduate School of Business who specializes in corporate governance.
At the startup’s office in Healdsburg, Yulia Zamora, an underwriter from 2015 to 2016, said it often seemed as if there were no rules. She said she was propositioned by a supervisor numerous times.
“It was a frat house,” Zamora said. “You would find people having sex in their cars and in the parking lot. It was a free-for-all.”