Sell-Side Has Issued Favorable Reports, While Being Paid Millions By BOFI To Sell Into The Market

Oct. 20, 2015 8:10 AM ETAxos Financial, Inc. (AX)39 Comments
Aurelius profile picture


  • Amidst a variety of recent allegations, sell-side analysts have rushed to defend BOFI and recommend that investors purchase the stock.
  • BOFI has been the single largest seller of its own stock since 2013. BOFI has sold 1.7 million shares (including several particularly well-timed sales) under an ongoing At-The-Market Offering Program.
  • As distribution agents for the program, BOFI's primary sell-side research firms have received over $3 million in total combined payments directly from BOFI over the past three years.
  • An enormous conflict of interest, the research firms have profited from selling BOFI's shares in the open market while, in some cases, simultaneously issuing glowing reports touting the company's prospects.
  • Anecdotal evidence indicates that BOFI may be using the ATM program as a tool to reward favorable research. As such, the objectivity of BOFI's sell-side research may be compromised.

"There is a belief by most American investors, who may be unsophisticated but remain a critical part of the Nation's capital markets, that analysts are somehow on their side. That an analyst is your advocate. They are impartial. They are bringing you information as your advocate." -The WatchDogs Didn't Bark: Enron And The Wall Street Analysts. United States Senate Hearing. February, 2002.

Bank of the Internet (BOFI) has been the subject of several publicly available research reports that have raised questions regarding the bank's business model, lending practices, and expensive stock market valuation. Most recently, BOFI was the subject of an unflattering New York Times profile, followed by last week's whistle-blower protection lawsuit filed by a former internal auditor.

The company hosted a conference call last Wednesday in an effort to refute the allegations contained in the complaint. During the call, CEO Greg Garrabrants described the suit as containing "factually inaccurate allegations from an inexperienced, underperforming, junior audit team member" and being "riddled with evidence of basic misunderstandings, inaccuracies, out-of-context statements and illogical conclusions." Mr. Garrabrants also pointed to an ongoing conspiracy of some sort coordinated by short sellers:

"But I will guarantee you in my view anyway, by the time we are done, we will find a coordinated effort with the media, with short sellers, and with Mr. Erhart to provide a variety of material non-public information to individuals who ultimately have been worried about the dollar sign. But they are going to have to remove the [S]. So instead they can be worried about tiny bars."

"There's a lot more going on here, and we have absolutely nothing to hide, and I am extremely unhappy with these sort of factual inaccuracies. And so, obviously, I look forward to attributing some component of our share price decline, and ensuring that the John Doe's name will

This article was written by

Aurelius profile picture
In-Depth ResearchNo affiliation with Aurelius Capital Management.

Disclosure: I am/we are short BOFI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (39)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.