Key Points
- Short seller Muddy Waters released a critical report on SoFi on March 17, alleging revenue misclassification and equity dilution strategies
- SoFi management swiftly rebutted the claims, labeling them as “factually inaccurate and misleading” while hinting at potential litigation
- Anthony Noto, SoFi’s CEO, demonstrated confidence by purchasing approximately $500,000 worth of company shares
- The short seller alleges SoFi’s investor relations failed to respond to four consecutive email inquiries regarding accounting practices
- Analyst Dan Dolev from Mizuho reiterated his bullish stance, keeping an Outperform rating with a $38 target price
SoFi Technologies is mounting an aggressive defense against accusations from a prominent short seller — and the battle continues to unfold.
On March 17, Muddy Waters Research released a report entitled “SOFI: A Financial Engineering Treadmill Leaving Management Fat, Shareholders the Biggest Loser.” The research firm claimed that SoFi engaged in share dilution to facilitate management bonus achievement and improperly classified borrowing proceeds as revenue.
The company wasted no time responding, dismissing the allegations as “factually inaccurate and misleading” while indicating it might pursue legal remedies.
CEO Anthony Noto backed up his words with action. SEC filings reveal he acquired approximately $500,000 worth of SOFI shares in the immediate aftermath of the report’s release.
Shares experienced minor pullbacks throughout the week, though no single-day decline exceeded 1.5%. By Monday’s trading session, SOFI had climbed 2.2%.
The JPMorgan Transaction Controversy
A significant portion of the controversy revolves around a $312 million deal involving JPMorgan Chase. Muddy Waters characterized this as an undisclosed borrowing arrangement — representing a substantial misstatement absent from SoFi’s balance sheet documentation.
SoFi’s rebuttal was unequivocal. “This is simply wrong,” stated a source familiar with the matter. “The $312 million loan with JPMorgan Chase was a loan sale, not a borrowing, as the report falsely claims.”
Dan Dolev, a Mizuho analyst, supported SoFi’s position. He referenced SoFi’s third-quarter 2024 earnings discussion, during which the CFO explicitly described the company’s sale of $312 million in senior secured loans at par value. The Q3 10-Q filing likewise documents a secured loan disposition at par throughout that timeframe.
Dolev emphasized that as a regulated banking institution, SoFi must obtain a “true sale opinion” for any such transaction, noting that the accounting standards are explicitly detailed in SoFi’s 10-K submissions under Variable Interest Entities and Transfers of Financial Assets sections.
Charge-Off Calculations and Discount Rate Methodology
Muddy Waters challenged SoFi’s reported personal loan charge-off figures, computing the rate at approximately 6.1% compared to SoFi’s disclosed 2.89%. The firm suggested SoFi artificially lowers this metric by removing loans approaching the charge-off threshold.
Dolev rejected this interpretation. He highlighted management’s transparent disclosure of a 4.4% rate after excluding $90 million in severely delinquent personal loans. Applying Fitch’s cumulative gross loss methodology, he calculated approximately 4.2% — substantially closer to management’s reported numbers than Muddy Waters’ estimate.
Regarding student loan discount rates, Muddy Waters contended SoFi employed a rate beneath the 10-year Treasury yield. Dolev explained that given SoFi’s student loan portfolio has a weighted-average maturity of roughly four years, the four-year SOFR rate serves as the proper comparison — not the 10-year Treasury benchmark.
Muddy Waters escalated their concerns over the weekend, asserting that SoFi’s investor relations department failed to acknowledge four subsequent emails containing accounting inquiries following an initial February 6 conversation. A fifth attempt elicited a response from SoFi’s general counsel, requesting identity verification without addressing 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 rating alongside a $38 price objective for SoFi.
Analyst Dan Dolev from Mizuho observed that many concerns raised by Muddy Waters represented information already available to market participants prior to the report’s publication.
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