Hi NewEchota -
First of all, I am still long BOFI. I have no axe to grind. And my aim in posting is not to convince anyone of a specific point of view.
My main motivation for posting a response is that I had an opposing view, and so in sharing that I hope people see the contrasting viewpoints and decide to read the document themselves because that will help them come to their own conclusion about how they feel about the situation.
I don’t think we have seen a smoking gun of any type, I don’t have any rock solid evidence to support my view. I feel the way I feel mainly based on my own interpretation of what might be going on and a ‘gut feeling’ more or less.
I’m not 100% certain anything shady is going on. Not even close to that really. I could be wrong. In fact, I hope I am and this all amounts to nothing.
But a couple examples and then I will really try to restrain myself from dissecting this too much more…
- with respect to The Structured Settlements and Lottery Audit”
He says due to what he determined to be a lack of evidence and some uncertainty on his part as to how specific California statutes apply in this case, he didn’t include anything about this in his final audit report.
Personally, from his statement, I don’t get the sense he was convinced they didn’t do this, only that there wasn’t sufficient evidence presented to show they did. Without that, he can’t include it in the report even if he suspects they may have. Hypothetically speaking, if he were to share that he thought they may have without sufficient supporting evidence, he would open himself up to the same type of blowback that Erhart is getting.
- with respect to potentially altered financials
He says: I did not interpret Mr. Constantine’s comments to mean that BofI was falsifying financial data.
there’s one that he just interpreted differently.
- with respect to untimely contributions of employee 401k elective deferrals
He says they found evidence of this. He reported it to the Audit Committee and spoke with the CFO about this. He was told they would not self report the issue. They looked at a rule that permitted this which he says seemed proper.
No refutation there. That seems like confirmation actually.
- with respect to alleged issues surrounding the approval of the Fiscal 2015 Strategic Plan
He says he doesn’t know when the plan was approved and didn’t see the document referred to.
That’s not a refutation. That’s saying he doesn’t know enough to say one way or another.
- with respect to Deposit Concentration Risk Findings
he doesn’t refute this either. in fact he says he spoke to their Chief Risk Officer about it. This guy used to work for the Federal Reserve. The Federal Reserve did an audit. Mr. Williams in so many words told him to not worry about it. So he didn’t. He then says he resigned before he could review the issue any further.
- with respect to Downgraded Performance Evaluation and Bonus
He says Erhart generally submitted well-evidenced audits and completed all Sarbanes Oxley testing on schedule. Surmises that the audits that weren’t completed in a timely fashion were due to untimely responses from business units. Says he submitted review to Mr. Tolla who decided to add a few things that resulted in a lower performance rating. Says he signed off and agreed at the time. But later brought up the issue of Mr. Tolla’s involvement with the Audit Committee. Then says he resigned before the Audit Committee’s next meeting.
No refutation there. Actually sounds like he was taking issue with Mr. Tolla’s involvement.
- with respect to BofI’s alleged response to a SEC Subpoena
He doesn’t refute this either. He speaks about this one at length, probably more than the others. Read it for yourself in the document and see what you think. Essentially he thought there was enough there for it to be handed off to Legal. Instead Erhart took it directly to the SEC himself which was not going through proper channels. But he doesn’t refute the issue. Only says Erhart didn’t handle it appropriately.
- with respect to Failure to Disclose Loans to Criminals, Politically Exposed Persons
Doesn’t refute this either. Says he is not sure whether the documentation Erhart refers to exists or not. Says he was not sure if it was technically against any internal or state rule to do this. Says he resigned before the audit was completed.
- with respect to BOFI Improperly Accounts for Allowances for Loan and Lease Losses
only says that the Internal Audit department is not responsible for accounting treatment policies.
That doesn’t mean there was no issue here. Only that he gets to play dumb if he so chooses because it was his departments responsibility.
- with respect to Global Cash Card Reviews for High Risk Customers
doesn’t refute this either. Shares that Mr. Tolla instructed the Internal Audit Committee not to bring it up the GCC situation with the OCC. If they asked about it they were to refer the OCC to Mr. Tolla. Mentions he does not remember if he discussed this with the Audit Committee in his final call after his resignation.
Hopefully, this is enough to substantiate my view. Again, my view is just my own personal hunch. If you feel differently I have no problem with that.
Also, another thought about the Outlook issue. They were transitioning from Outlook to Jabber. Jabber is an instant messaging service. Not really comparable to Outlook. Can Jabber conversations be saved? Is there any way this is an effort to reduce paper trails?
Also, I note that he resigned while many of the above issues were still unresolved. It’s not clear if any of these factored into his decision to resign.
In any case, I hardly think this amounts to a refutation of all the claims made by Mr. Erhart.
I’m not convinced that any of the above claims by Erhart are valid. I don’t believe Erhart any more than the rest of them at this point. I only aim to illustrate why I don’t think Mr. Ball explicitly refuted the claims.
The water remains muddy for me. I think the answers are stated such that they don’t help BOFI’s or Erhart’s case.
Just my two cents. Please don’t let me sway your thinking. Read the documents for yourself and see what you think.