More on BOFI

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I know I promised I wouldn’t say any more about BOFI, but I can’t help it. There’s a new short article out, which I will summarize for you.

http://seekingalpha.com/article/3759586-former-bofi-head-aud…

Jonathan Ball is the Chief auditor of Bofi who quit when Erhart quit. The author links to Mr. Ball’s recent declaration in which Ball says he led the audit department at La Jolla Bank for 18 years. He says he left La Jolla Bank in March 2010, and according to his Linkedin profile he joined BOFI one month later…

Now, La Jolla Bank (the largest US bank failure in 2010), where Ball ran internal audit for almost two decades, failed in February 2010 (a month before he left), after going down as one of the biggest bank frauds in Southern California history. The company’s executives admitted to accepting bribes, and the bank’s failure cost taxpayers a $1 billion loss. The bank was publicly criticized by the government for having weak and inadequate internal controls, conditions that the government claimed persisted for years while Ball was tasked with running the internal audit division. Ball leaves La Jolla Bank off his Linkedin profile

The author of the article wanted to be clear that Mr. Ball was never accused of having any role in the actual fraud at La Jolla Bank. He was not alleging that Ball’s actions were illegal in any way. However, given that he ran internal audit at a bank that failed as a result of fraud and weak internal controls, and has subsequently found himself in a very similar situation only five years later at BOFI, his past is clearly very relevant to BOFI investors. And the author didn’t ask, but I’ll ask, Why did Bofi hire a guy fresh from a back seeped in fraud and failure?

I mean, Jeez guys, this may all blow over, and I know you don’t want to feel bad about this, but how many red flags do you need? There are other stocks out there.

…

Here’s another way to look at it. A few months ago the stock was over $140 (before the stock split which I will ignore). In the last week it got as low as $72 ($18 post-split). So, with the stock falling almost in half, and a PE of 11 or 12 or something, the entire insider contingent steps up and in the last week buys a total of… less than one thousand pre-split shares. Yes, less than ONE thousand pre-split shares. (3000 post-split shares equals all of 750 shares a couple of weeks ago, pre-split). Does that inspire confidence in YOU?

There are better choices.

Saul

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Hello Saul,

However, given that he ran internal audit at a bank that failed as a result of fraud and weak internal controls, and has subsequently found himself in a very similar situation only five years later at BOFI, his past is clearly very relevant to BOFI investors

You cannot possibly believe this statement? BOFI is not a failed bank! Are you now a seer that can project the future? The shorts are doing a good enough job without your assistance.

IMO, you obviously would have been better off to keep your promise to quit posting about BOFI.

Best regards,

Mike

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Hi Saul

Just a little advice from the knowledge base:
http://discussion.fool.com/our-new-improved-knowledgebase-ed-2-j……

You don’t have to be right about the stocks you sell, just the ones you hold in your portfolio. It simply DOESN’T MATTER what happens to a stock after you sell it. The only thing that matters is what the stocks do that you are holding. Think about that!

“I don’t really need to be right for the stocks I sell, I just need to right about the stocks I own.” Boy! Doesn’t that really say it all! It simply doesn’t matter what happens to a stock after you sell it.

Alex

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Saul80683: I know I promised I wouldn’t say any more about BOFI, but I can’t help it.

After the declaration by Mr. Ball failed to provide the rumored rock solid corroboration of Mr. Erhart’s allegations and drive the price significantly lower, the short attack has shifted to character assassination.

Of course, of the dozens of former executives of La Jolla Bank who have been indicted, Mr. Ball is not among them. One would think that a high ranking auditor would be one of the first (and easiest) places to look for and find individual wrongdoing.

Saul80683: Why did Bofi hire a guy fresh from a back (sic) seeped in fraud and failure?

Perhaps because Bank of Internet (the original company name) was founded by Gary Lewis Evans, a former president of La Jolla Bank. Senior executives often turn to co-workers or subordinate executives of former companies (people they like and/or trust) when filling roles at a new company. I’ve seen it happen over and over again.

Saul80683: In the last week it got as low as $72 ($18 post-split). So, with the stock falling almost in half, and a PE of 11 or 12 or something, the entire insider contingent steps up and in the last week buys a total of… less than one thousand pre-split shares.

Using your logic, Skyworks is down 31% (with no NY Times article or coordinated short attack on Seeking Alpha to drive down the price). Sounds like a great time for insiders to load up, doesn’t it?

So what’s happened during the fall in price? Here are the (cumulative) insider activities during the recent decline:

Liam Griffin sold 10,000 shares
David Aldrich sold over 20,000 shares
Mark Tremallo sold 6,700 shares

There were no purchases that were not immediately sold in a stock option transaction.

Zero.

Skechers is down 45%. Again, sounds like a great time for insiders to load up, doesn’t it?

So what’s happened during the decline in price of Skechers? Here are the total insider securities acquired after the substantial price collapse:

Zero.

Senior executives at Skechers have not purchased a single share on the open market after the significant decline in share price.

Confidence, indeed.

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Just offhand it would seem Ball is just not super competent
Fraud often takes years to pick up, being an insider may not help much in detecting fraud.

After having smelt blood in the water and having already got much of the evidence,prosecutors would have found it easy to get Ball if there was any case against him.

Nevertheless BOFI hiring him would seem to be pretty boneheaded, and does not reflect well on management.

It seems to me the stock market works on expectations and present bear stories are not easy to prove or disprove , so the effect could hang around for long time. Even rising earning might not be enough.
Being a bank a blow out success like finding a cure for some dread disease is highly unlikely.

I still have a few shares, but probably should have sold them. Because I think it will take over a year for BOFI stock to go up even if the news is good. And the news may not be good…

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Wow, Saul, your BOFI post elicited some emotional responses!

I appreciated hearing your opinion of the latest news, but others, maybe not so much.

Sounds like maybe you should go back to your own board to post such…oh, nevermind. :wink:

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Wow, Saul, your BOFI post elicited some emotional responses! I appreciated hearing your opinion of the latest news, but others, maybe not so much.

You are right foodles, but I’m glad that a few people appreciated it. I should know better than to try to rescue people when they don’t want rescuing, and seem to resent the advice. I really, really should! I remember the same kind of angry, emotional, responses when I warned about WPRT a couple of years ago. People were furious that I could point out unpleasant realities about a stock they loved. (It was over $47 two and a half year ago or so. It closed today at $2 or so).

With WPRT there were no accusations of malfeasance, just that they were losing so much money that I figured that they would have had to increase revenue to 500% of what they were bringing in to just break even (not even make a profit), and management was forecasting revenue up 15%.

I don’t really care what people do about BOFI, and I have never shorted a stock in my life (I’d be too scared of that unlimited potential loss), but I’m just trying to point out to people that there are other alternatives out there without all this baggage, and thus safer! But Boy! does that seem to make people mad! As for me, if someone asked me to invest in a company with all this going on, and a chief auditor who quit when accusations were made, and it turned out he came from another company that failed in the midst of a criminal scandal, and was hired the very next month…I’d say “You want me to invest in this company? When there are so many other companies out there? Do you think I’m nuts?” But that’s just me.

Thanks noodles, for the support.

Saul

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Thanks noodles, for the support.

Should be foodles, but the darn automatic spelling corrector didn’t like noodles and changed it when i wasn’t looking.

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Hello Mauser,

Because I think it will take over a year for BOFI stock to go up even if the news is good. And the news may not be good…

The short article today did not seem to have the desired effect. (the shares traded up on the day)Perhaps the shorts have driven out the folks that have given their drivel any credibility?

The short thesis seems to be that BOFI is run by crooks and fraudsters. I believe that there are many individuals and funds participating in this short raid. I believe that they have artfully spread a great deal of fear, uncertainty, and doubt. They have done this with damning innuendo, false assumptions, market manipulation, a mixture of truth (not necessarily negative in its own right, but spun with malicious negativity by authors trying to deceive). They have been aided and abetted by journalists such as the New York Times writer, Peter Eavis, who is either gullible or otherwise complicit. As it has turned out, BOFI has been easy prey. Its shares were over-valued by traditional bank market metrics. It had many investors attracted because of its growth and “branchless bank-internet driven” tech modus operandi, NOT
because they had a serious understanding of the banking business.

The decline in price from 140+ to 100 or so was supported by the fact that the stock price had gotten ahead of reasonable metrics. In my view, the fall below 100 has been a combination of the market swoon and the expertise of the short cabal. This will pass, although it is hard to say exactly when. The Fed raising rates will help banks in general and BOFI in particular. They will be receiving a large amount of short term deposit funds from the H & R Block transaction which will be limited in their investment options to Fed Funds. Their earnings on those deposits just doubled! On the new stock pps (after the split) they should earn more than $2.00 per share for calendar 2016. How long do you think that a bank with their growth in deposits, assets, and earnings will trade for less than 10 times earnings? I believe that shares have recently been transferred to stronger hands that understand the banking business better and that they will be joined by institutions that understand the business (perhaps even some of the hedge funds in the short cabal). I also believe that following good earnings reports that the stock price rise could be rapid. Once a bottom has been reached, smart money will want to catch the ride before it has gone far.

As to the “criminals and fraudsters” thesis, why in the world would such nefarious folks want to bring extra scrutiny on themselves by acquiring another bank’s assets or even a large transaction like H & R
Block? IMO, I would be very surprised if a bank growing as fast as BOFI has not made some mistakes along the way. I would be absolutely shocked, however, if they could have done the serious things alleged by the short cabal and not been discovered by the regulators that have practically lived with BOFI over the past 18 months.

This is already very long but I wish to comment on one of the recurring themes of the shorts: “off-balance sheet SPE” Sounds bad, huh? Exactly whose balance sheet is referred to here? In the S & L crisis in the early 80’s many financial institutions were in bankruptcy court trying to collect on loans that were heavily secured and performing on their books but were being “reformed” by a bankruptcy judge. The judge had great powers and the bank’s borrower was a big corporation that had many assets and lenders and was unable to make payments to all the lenders. Therefore, the judge would change the terms of the loan that was well collaterized to favor other creditors that were suffering loss.
Lenders as an industry did not like that. They changed their policies and required that their borrower be a “Single purpose entity” That is, a corporation or LLC that held only the collateral that they were securing their loan on. The loan could be guaranteed by the parent corporation, but the borrower is the SPE and outside the purview of the bankruptcy court should the parent get into financial trouble. Therefore, the lender is better protected and following best banking practice by lending to the SPE.

I certainly do not think that Saul did anything wrong by selling his stock and notifying his followers here that he had done so. However, I do not think he was right to imply that the short community was correct in their statements and he was just flat out wrong to state that BOFI is a failed or failing bank as he did today.

Best regards,

Mike (long BOFI)

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Saul, for folks who already have large positions in your other favorite companies, where would you look to redeploy BOFI funds these days? Perhaps that will help highlight some nice alternatives for the capital.

Neil

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where would you look to redeploy BOFI funds these days? Perhaps that will help highlight some nice alternatives for the capital.

Hi Neil,

If I was selling it today and was looking at a place for my newly available money, I might look at and evaluate EPAM, FB, LOGM, CELG, AMZN, CBM, CYBR, OLED, PRAA, LGIH, PYPL, ELLI, WAB (beaten down), etc.

Best,

Saul

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Hi Saul,

Thanks for your opinion. I do appreciate you sharing your thoughts good or bad and I will always enjoy reading them regardless whether we agree or disagree. I hope you never feel reluctant to post any thoughts good or bad because I think we all can benefit greatly from your and many others opinions.

I personally am staying long the stock for my own reasons. That will probably not change until I hear some hard news from the company. Maybe that will cost me more money, but that is a scenario I will accept if it comes to that. Good or bad I will hold myself accountable for whatever happens. I very much respect your decision to get out of the stock which you determined to be the best for your personal situation. Everyone else will have to make a decision for themselves whether they want to take part in the ride or not.

I just have one suggestion though. I know you haven’t used CAPS yet, but given all the controversy in the stock maybe you should give it a thumbs down just for the fun of it? It will also allow you to give as detailed of a reason as you care to give for your call. That will lock in your opinion and let you be accountable for your call good or bad. Then others who have differing opinions can give it a thumbs up. We can track our progress and maybe down the road we can talk about what we all as a group learned from the experience? That might be more productive at this point then arguing back and fourth with little new news to evaluate.

Best,
Soth

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Hi Soth, thanks for your suggestion. I’ve never actually used CAPS and probably won’t start. I’m not sure I’d give BOFI a thumbs down anyway, as my guess is that it’s more than likely (more than 50%) that the company will eventually do very well. It’s just that there seems to be a lot more risk than I, for one, am comfortable with, so I’m staying out for now, and I was just warning other people that there is a lot of stuff which “looks” really bad, looks terrible in fact, which you don’t need to be accepting in companies you invest in, even if in the end it turns out to do quite well. (It’s different than WPRT which I mentioned a few posts back, where I couldn’t see how it could turn out well). Just the way I see it.

Thanks again,

Saul

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Saul interesting that AMZN is one of your picks. I have been an Amazon customer for nearly a decade. In that time even though I was a happy user I never bought AMZN. Thus missing an 8 bagger.
They never made much money, busy spending it building infrastructure. I thought the market would one day punish them for that, but it never happened. My big blunder. Because it was a perfect Peter Lynch stock otherwise.

I suppose you can classify Americans into two classes - those who like to go out and shop, and those who don’t. I fit into the latter class. Except for groceries I rarely visit brick and mortar stores anymore. Unlike these stores the Amazon experience keeps getting bette and better. Though I more often find their prices are not that much lower, (especially since they now charge sales tax in my state) I have no intention of going back to wasting my time going back and forth from here to there looking for things. Things that I can find on line complete with specs and user reviews.

Ao at this point my biggest questions are

  1. Will getting even bigger in size hurt Amazon? At what point does scale start working against you? Continued advances in computers and automation must be making this tipping point ever further away but there my be a limit.
  2. Have they come close to the point where most of their money no longer has to go into building distribution centers? Because I would like to see more going into profits. I have only anecdotal info here but they have really built up in my state and are now ready for same day delivery.
  3. Has all this future growth, income growing faster than sales, been factored into the stock price? Is there any edge here for new investors in AMZN much less a “blood in the streets” moment? Something that we could know that isn’t known by millions of other investors?

Another anecdote- I ordered some suspenders via Amazon, but was shipped the wrong size by the vendor. All it took was a couple of minutes on the computer and UPS picked them up at my house. My credit was was received within 24 hours. Try returning something at a big box store near Christmas.

Hint - for anybody who has trouble keeping their pants up but can’t stand regular clip on pants suspenders, check out Perry attach to belt type suspenders. They are great. They positively will not slip off , or tear your pants. And you can carry heavy stuff in your pockets

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I should know better than to try to rescue people when they don’t want rescuing, and seem to resent the advice.
Hi Saul, I really appreciate your advice, other should appreciate that too. I am here to hear someone else view. If I am satisfied with my own view than what is the point?

About trying to rescue people that thy don’t want to be rescued here is a Joke:
A Rabi lived in a town. That town had a flood and his friends told him: Let’s leave and go to a safe place. His reply was “God will save me!”
Then the water entered the house and the phone rang “Rabii come with us”. No he said: “God will save me”. Finally when he is on the roof and water everywhere, suddenly, there is a boat. Rabi, jump in we came to save you. No, he replied. God will save me.
So he died and went up to heaven. Why didn’t you save me God? he ask. I made sure I followed all the commandments and was a great person.
God replied: I sent you your friends, then I called you to get out and then I sent you a boat. I really tried to rescue you but you refused.

So, Saul. You already sent them quite a few boats. Nothing you can do more…
I don’t understand that myself, so many negative signs and they insist to be in it.

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SaulR80683: As for me, if someone asked me to invest in a company with all this going on, and a chief auditor who quit when accusations were made, and it turned out he came from another company that failed in the midst of a criminal scandal, and was hired the very next month…I’d say “You want me to invest in this company? When there are so many other companies out there? Do you think I’m nuts?”

Saul, I think you’re a great guy and have a great board but I think what you’ve done today is wrong and here’s why:

First, there is no “criminal scandal” at BofI. There is a former employee who has made allegations of “potential” wrongdoing in a personal legal action that has been vigorously denied by the company and, for the most part, has not been supported by his former supervisor.

Second, you’ve brought allegations, half-truth, and innuendos made by admitted short sellers at Seeking Alpha to the board on more than one occasion and blessed them as the truth; one of those messages even became a “post of the day.”

Third, you’ve justified your beliefs that Seeking Alpha is right in its unflattering assessment of BofI by suggesting that any company so beaten down from its 52-week high that does not have significant insider buying (“the entire insider contingent steps up and in the last week buys a total of… less than one thousand pre-split shares”) is more or less admitting that something is wrong with the company.

Now let’s do a little experiment and look at your current portfolio.

Here are your stocks. their percentages below their 52-week highs, and their Insider Trading for the current quarter (data from today’s Morningstar):


     Company            %Below 52-Week High          Insider Activity
     SWKS                     -31.09%                      0 Buys
     SKX                      -45.28%                      0 Buys
     INBK                     -24.88%                      0 Buys
     INFN                     -24.25%              125,566 Shares Sold
     LGIH                     -31.11%               97,876 Shares Sold
     CASY                     -02.05%                  439 Shares Sold
     SNCR                     -29.44%                3,946 Shares Sold 
     SEDG                     -48.86%            1,006,923 Shares Sold
     AMZN                     -03.82%            Too many to Calculate 
                                                 but looks like a wash
     WAB                      -33.33%              6,470 Shares Bought 
     ABMD                     -21.86%                      0 Buys

So in the 11 stocks in your portfolio for the entire current quarter (not just one week), 6,470 shares were acquired by insiders and over one and one-quarter million shares were sold.

Now, I don’t think you’d suggest there’s anything suspicious going on at any one of these companies in spite of the fact that most of them were priced significantly below their 52-week highs when the shares were sold; and the fact that they have virtually no “buy” activity is some sort of a dark cloud waiting to rain on investors.

Now BofI may be filled with a den of rattlesnakes and the company may blow up tomorrow but allegations are not facts… and the lack of insider buying is not a confirmation of management’s lack of faith in a company.

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Hi NewEchota, Thanks for some constructive criticism. I’ll comment on a couple of things.

First, there is no “criminal scandal” at BofI.

I never said there was any criminal scandal at Bofi. I said the chief auditor came from a company where there was one. I think that what I said was very clear about that, but maybe it wasn’t.

and blessed them as the truth

I don’t think I ever did that, ever. I just said that with that much apparent stuff going on there was too much risk that some of it was correct, and it was more risk than I wanted to deal with, and I felt that others shouldn’t dismiss it out of hand because it came from short sellers. That would be like dismissing positive comments if they came from people who are long a stock.

As far as the absence of buying in all the stocks, no one is accusing those companies of a bunch of stuff. If my company was under attack like Bofi is, I would assume that the directors and senior officers would feel some imperative to defend the stock, by at least buying some of it at such ridiculous prices, if they really felt the accusations were all false. How do YOU explain the lack of purchases? It’s hard for me to understand.

Let me reiterate, I think Bofi the company will more likely than not come out of this way up from where it is now. I just don’t want to take the risk in the light of so much “coincidental” and “unproven” stuff (I won’t even call it evidence, because I don’t know enough about banking rules and laws to know what’s allowed and what isn’t, and whether any of it is true or not, although it does appear to be true that Ball was chief auditor at a bank where a lot of people were indicted, immediately before coming to Bofi).

Best,

Saul

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Soth, why would a person who never shorts give a thumbs down in CAPS … especially if they never did anything with CAPS in the first place. The point is that Saul lacks confidence in BOFI and would rather put his money elsewhere … that is a very different issue than thinking it would be a wise move to short the stock!!!

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Hint - for anybody who has trouble keeping their pants up but can’t stand regular clip on pants suspenders

Or, sew on a couple of buttons and use real suspenders … end of problem.

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I think what you’ve done today is wrong…

You think it is “wrong” for Saul to express his considered opinions on his own board?

If you had said you think Saul’s judgment is “wrong” on BOFI, that would be one thing. But to say that “what you’ve done” is wrong?

That’s just wrong.

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