SoFi (NASDAQ:SOFI) was recently targeted by noted short seller Muddy Waters. In a report delivered on March 17th, Muddy Waters declared that SoFi is a “financial engineering treadmill” and that shareholders are being “incessantly diluted” to help management hit bonus targets.
The firm also hammered SoFi with the claim that it “appears to have a material misstatement of at least $312 million of unrecorded debt. If we are correct, it raises the possibility that there are more extensive misstatements we have not detected.”
Muddy Waters mentioned other misdeeds by the Fintech.
In a follow-up post, Muddy Waters published eleven questions for SoFi.
In a release following the first report, SoFi counted the allegations:
“The claims made in the Muddy Waters report demonstrate a fundamental lack of understanding of our financial statements and business. We intend to explore potential legal action against Muddy Waters for the factually inaccurate and misleading report they shared about our business today.
Muddy Waters is known for producing reports designed to erode shareholder value solely to allow short sellers to profit from a declined stock price. In fact, their report discloses their intent to begin covering a substantial majority, possibly all, of their short positions immediately upon publication, and therefore, they stand to profit from their own misleading report. We have reviewed the full report and believe it is designed to deceive investors.
SoFi maintains strong confidence in the integrity of our financial reporting. We are a highly regulated public company with financial statements and extensive disclosures prepared in conformity with U.S. GAAP and the rules and regulations of the SEC, supported by robust internal controls and procedures. Additionally, we are a bank holding company regulated by the Federal Reserve and operate a bank that is regulated by the Office of the Comptroller of the Currency, among other regulators.”
SoFi CEO Anthony Noto also purchased $500,000 worth of SoFi shares to signal confidence in the firm.
While shares of SoFi declined a bit, several analysts who cover the firm came to SoFi’s defense. Mizuho countered the short seller’s claims while maintaining an outperform rating on the firm.
SoFi will report Q1 earnings at the end of next month. We can expect the Muddy Waters’ claims to be addressed at the time, if not sooner. Year to date, SoFi shares are down by around 34%.