Buyer Beware: BOFI Related Party Loans

Nov. 04, 2015 8:30 AM ETAxos Financial, Inc. (AX)68 Comments


  • Rather than publicly addressing transcript alterations, BOFI privately discussed them with at least one analyst (D.A. Davidson), which is potentially a Reg FD violation.
  • BOFI's behavior has dire ramifications for ATM underwriters KBW, Raymond James, and FBR.
  • I have looked into the company's related party loans and think that the way it has described these loans to the SEC requires further review.
  • The company's related party loans may suggest a culture of lax compliance at the Board level, which would explain why the Board never engaged an outside auditor.
  • The transcript alteration spectacle is causing a rapid erosion in BOFI's reputation/credibility.

The BofI Holding, Inc (BOFI) situation has taken so many twists and turns in the past few days that I figured I would do my best to give people a quick update on what is happening, before turning to today's discussion. For the "TL/DR" camp, here is a simple summary - based on the behavior of management over the past few days and the lack of an external investigation into Charles Erhart's claims, I think the bank's reputation is irreparably damaged, and I now think BOFI equity is going to be worthless in short order.

Today, I will mostly talk about the related party loans, but I am actively researching a new angle on BOFI. I have also recently uncovered a "quirky" undisclosed BOFI lending relationship... so stay tuned for a potential Part III in this series.

Part I - If you are already caught up on the BOFI situation, skip straight to Part II below, which discusses the Related Party Loans

Here is a quick rundown of what has been going on with BOFI:

  1. A former employee sued the company claiming that BOFI retaliated against him for his whistleblower activities... his lawsuit included allegations that the company was less than truthful with federal regulators.
  2. BOFI held a conference call to defend against the lawsuit's allegations... on the conference call, it denied accusations that it had defied/mislead regulators.
  3. BOFI then produced a transcript of the call and furnished it to the SEC... however, the company decided to substantially modify its version of the transcript.
  4. It then had sidebar conversations with at least one sell-side analyst to discuss these modifications (I think this is a Reg FD violation, but I am not a securities law expert).
  5. In other words, hours after fervently denying allegations claiming that it had mislead regulators, BOFI turned around

This article was written by

Offering the world some REAL TALK when expectations equate to irrational exuberance.

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.

Additional disclosure: This article represents the opinion of the author as of the date of this article. This article is based upon information reasonably available to the author and obtained from public sources that the author believes are reliable. However, the author does not guarantee the accuracy or completeness of this article. It is merely the author's interpretation of the information contained in the article. The author may also cover his/her short position at any point in time without providing notice. The author encourages all readers to do their own due diligence. This is not a recommendation to buy or sell a security

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