Key Takeaways
- On March 17, Muddy Waters released a short report claiming SoFi manipulated revenue accounting and diluted shares to achieve executive compensation milestones
- SoFi rejected the allegations as “factually inaccurate and misleading,” hinting at potential litigation
- Anthony Noto, SoFi’s CEO, purchased approximately $500,000 worth of SOFI shares following the report’s release
- The short-seller alleges SoFi’s investor relations department failed to respond to four consecutive emails containing accounting inquiries
- Dan Dolev from Mizuho stood by SoFi, reaffirming an Outperform rating with a $38 target price
SoFi Technologies is mounting an aggressive defense against accusations from a prominent short-seller — and the controversy continues to unfold.
On March 17, Muddy Waters Research issued a critical report entitled “SOFI: A Financial Engineering Treadmill Leaving Management Fat, Shareholders the Biggest Loser.” The short-seller accused SoFi of engineering share dilution to enable executives to reach performance-based compensation thresholds while improperly classifying borrowing proceeds as revenue.
SoFi’s response came swiftly, dismissing the allegations as “factually inaccurate and misleading” while indicating the company might pursue legal remedies.
CEO Anthony Noto demonstrated his conviction through action. Public filings revealed his purchase of approximately $500,000 in SOFI shares immediately following the report’s publication.
The stock experienced modest declines throughout last week’s trading sessions, with no single-day loss exceeding 1.5%. Come Monday, SOFI shares had rebounded 2.2%.
Examining the $312 Million Transaction Controversy
The core dispute revolves around a $312 million deal involving JPMorgan Chase. Muddy Waters contended this represented an unreported borrowing arrangement — constituting a significant accounting error absent from SoFi’s financial statements.
SoFi’s rebuttal was unequivocal. “This is simply wrong,” stated a source familiar with the company’s position. “The $312 million loan with JPMorgan Chase was a loan sale, not a borrowing, as the report falsely claims.”
Dan Dolev, an analyst at Mizuho, corroborated SoFi’s explanation. He referenced SoFi’s third-quarter 2024 earnings presentation, during which the CFO explicitly disclosed the sale of $312 million in senior secured loans at par value. SoFi’s Q3 10-Q filing likewise documents a secured loan sale at par executed within that quarter.
Dolev emphasized that as a regulated banking institution, SoFi must obtain a “true sale opinion” for transactions of this nature, and the relevant accounting standards are thoroughly documented in SoFi’s 10-K submissions under Variable Interest Entities and Transfers of Financial Assets sections.
Analyzing Charge-Off Rates and Discount Rate Methodologies
Muddy Waters additionally challenged SoFi’s reported personal loan charge-off metrics, computing a rate of approximately 6.1% compared to SoFi’s disclosed 2.89%. The short-seller suggested SoFi artificially deflates this metric by offloading loans immediately before they reach charge-off status.
Dolev challenged this interpretation. He highlighted management’s separate disclosure of a 4.4% rate after removing $90 million in severely delinquent personal loans. Applying Fitch’s cumulative gross loss methodology, he calculated approximately 4.2% — aligning more closely with management’s figures than Muddy Waters’ assessment.
Regarding student loan discount rates, Muddy Waters contended SoFi employed a rate beneath the 10-year Treasury yield. Dolev refuted this, explaining that since SoFi’s student loan portfolio carries a weighted-average maturity of roughly four years, the four-year SOFR represents the proper benchmark — not the 10-year Treasury.
Muddy Waters escalated its position during the weekend, alleging that SoFi’s investor relations department disregarded four subsequent emails containing accounting questions after an initial February 6 telephone conversation. A fifth attempt elicited a response from SoFi’s general counsel requesting identity verification but providing no answers to the substantive questions.
“SOFI’s silence in response to our questions and report, in our view, affirms our conclusions,” Muddy Waters stated.
Following the exchange, Mizuho’s Dolev upheld his Outperform recommendation and $38 price objective for SoFi.
Analyst Dan Dolev from Mizuho observed that multiple concerns raised by Muddy Waters had already been disclosed to the market prior to the report’s publication.
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