Okay, now I’ve got the Complaint. I’ve read it. It is well done and if you credit it it paints a very disturbing picture of the inside of Bofi. The New York Times article really does not do it justice, mostly because the allegedly wrongdoing at Bofi goes far beyond the spreadsheet without the social security numbers. This is what the Complaint alleges:
Bofi derives revenue from purchasing structured litigation settlements and lottery payments. This is done through subsidiary Anfed Bank, which cold-calls to solicit prospects. Bofi’s callers allegedly failed to reveal that the calls were being recorded, in violation of California law.
The chief credit officer allegedly said he would not stand behind the bank’s numbers after they are turned over to the CFO, suggesting to the whistleblower that the bank may be falsifying its financials.
Bofi was making untimely deposits to its employees 401(k) accounts.
Allegedly there is “deposit risk” because 4 customers accounted for 25% of total deposits. Nine customers were 60% of the total deposits.
The SEC served BOFI with a subpoena for information about an investment. BOFT had a file full of documents but falsely told the SEC it had none.
The OCC asked BOFI for information about accounts with no associated tax ID numbers. BOFI said there were none. There were.
The OCC asked BOFT to identify all subpoenas, including grand jury subpoenas, it had received. BOFI said it had received none. It had received many.
BOFI “recently calculated Allowances for Loan and Lease Losses (“ALLL”) to exclude unfunded commitments for lines of credit. The size of the unfunded commitments excluded from ALLL meant the ALLL may have been materially miscalculated, which could materially impact the Bank’s earnings.”
The CEO was depositing structured settlement payments into a personal account.
The largest account at the bank is in the tax ID number of the CEO’s brother. It was a $4 million balance, even though the brother is a minor league baseball player earning poverty wages.
Audit department employees were told in February 2015 that they could no longer use Outlook to communicate.
Then there’s all kinds of stuff about retaliation against the whistleblower and the other auditor who resigned. It’s all quite dramatic.
The bad news: Most of this stuff would be quite troubling, if true. Some could be explained away. The deposit risk stuff, and the CEO’s brother’s account, is either true or its not.
The good news: All of this stuff was disclosed to the OCC by the whistleblower. He also went to the SEC. No regulator seems to have credited the allegations. Others have noted that the CEO’s statement to the New York Times could still be false, but it would be bold. I think we can now state with assurance that it is not false, because the whistleblower himself is explicitly that he told the government everything he believed was going on. And he did so at a time when the OCC, at least, was working inside of BOFI.
So let’s make of this what we will. I find it unsettling.
And above all, never think you can reach a judgment based on the New York Times’ characterization of a legal event. There has been lots of speculation here today, all based on what the New York Times said was alleged by the Complaint. But the New York Times did a miserable job of conveying what the Complaint actually says.
I’m not going to attempt to post the PDF of the Complaint publicly and link to it, but if someone else wants to, send me your e-mail and I’ll send it to you.
The bad news: Most of this stuff would be quite troubling, if true. Some could be explained away. The deposit risk stuff, and the CEO’s brother’s account, is either true or its not.
The good news: All of this stuff was disclosed to the OCC by the whistleblower. He also went to the SEC. No regulator seems to have credited the allegations.
So let’s make of this what we will. I find it unsettling.
On one hand all the regulators have missed a big one if this is true, but that is highly unlikely. Plus everyone over there at BOFI is going to jail - I don’t think they would be that careless? Also an analyst at FBR did refute the claims as well.
On the other hand this is way too detailed for the plantiff (Erhart) to be making everything up unless he is an extreme sociopath (possible but unlikely).
I’m definitely worried now, but let’s wait and see for an official company response and/or more info.
4. Allegedly there is “deposit risk” because 4 customers accounted for 25% of total deposits. Nine customers were 60% of the total deposits.
…
10. The largest account at the bank is in the tax ID number of the CEO’s brother. It was a $4 million balance, even though the brother is a minor league baseball player earning poverty wages.
Did I read this correct? $4 million is the largest account. 9 accounts were 60% of total deposits. So do the math:
($4 million * 9) / 60% >= total deposits. So BOFI has no more than $60 million in total deposit?
4. Allegedly there is “deposit risk” because 4 customers accounted for 25% of total deposits. Nine customers were 60% of the total deposits. + + + 10. The largest account at the bank is in the tax ID number of the CEO’s brother. It was a $4 million balance, even though the brother is a minor league baseball player earning poverty wages. + + + The bad news: Most of this stuff would be quite troubling, if true. Some could be explained away. The deposit risk stuff, and the CEO’s brother’s account, is either true or its not.
Scratching my head at the ‘logic’ of the Complaint: If the top 4 accounts represent on average 6.25% of deposits, and the next 5 represent an average of 7%, there is something wrong with their ordering or arithmetic or both.
Presumably, the brother’s account represents the largest loan balance outstanding (rather than deposit, since then he math really wouldn’t work): perhaps one of the reasons he can afford to participate in the minor leagues is because he has significant financial backing from his family. Who knows what other guarantees are in place … but this all smacks a little bit of an invasion of personal privacy.
With all of the subpoena related points, the devil is in the details of what is sought … and there is no reason to suppose that this joe would have had any exposure to those details.
This sounds to me like the rant of someone who was not as senior or as well-informed as he thought he was or should be.
Let’s hope the earnings continue to impress, and this is an AFSI rather than an EBIX!