TLDR
- Muddy Waters Research announced a short position in SoFi (SOFI), sending the stock down over 4% intra-day Tuesday before closing down 1.3%
- Muddy Waters called SoFi “a financial engineering treadmill,” alleging at least $312 million in unrecorded debt
- The firm claims SoFi’s reported EBITDA of $1,054 million is inflated by roughly $950 million
- CEO Anthony Noto responded by purchasing $500,000 worth of SOFI stock after market close at ~$17.32 per share
- Keefe Bruyette kept its Underperform rating with a $20 price target, saying the report “raises some new questions” but most Street concerns were already known
SoFi Technologies (SOFI) had a rough Tuesday. Short seller Muddy Waters Research published a report announcing a short position in the stock, calling the company “a financial engineering treadmill, not a healthily growing origination business.”
The stock dropped more than 4% intra-day before recovering slightly, closing down 1.3% at $17.37.
Muddy Waters is a well-known short seller that has previously targeted other financial and tech companies. Their reports tend to move markets quickly.
The report accused SoFi of running a business model designed more to hit management bonus targets than to grow organically. Specifically, it alleged the company uses loan marks and off-balance-sheet structures to disguise borrowings as revenue.
One of the bigger claims: SoFi has at least $312 million in unrecorded debt. Muddy Waters said this opens the door to the possibility of further misstatements that haven’t yet been found.
On loan performance, Muddy Waters calculated SoFi’s Personal Loan charge-off rate at about 6.1%. SoFi reports that figure as 2.89%. That’s a wide gap.
The firm also took aim at SoFi’s Student Loan segment, saying it appears to exist mainly to generate Fair Value gains that feed management bonuses, rather than for any strategic or economic reason.
SoFi’s Loan Platform Business got a similar treatment. Muddy Waters called it a “wet-funded forward flow transaction” — essentially a disguised form of borrowing where loan proceeds get booked as fee income.
EBITDA Inflation Claims
The headline number that stands out: Muddy Waters says SoFi’s reported EBITDA of $1,054 million is inflated by roughly $950 million. That would leave real EBITDA at around $100 million.
The firm attributed the alleged inflation to a mix of manipulated charge-off rates, seller-financed sales, unrecorded borrowings, and capitalized marketing expenses excluded from the headline metric.
Muddy Waters also said management has locked in $58 million through instruments it described as economically equivalent to stock sales, while publicly claiming not to have sold any stock.
CEO Noto Responds With His Wallet
After the market closed Tuesday, CEO Anthony Noto filed a Form 4 with the SEC. He bought 28,900 SOFI shares at an average price of $17.3189, totaling $500,000.
The stock rose about 1% after-hours following that disclosure.
Noto’s purchase is a direct signal of confidence, though it didn’t fully erase the day’s losses.
Analyst firm Keefe Bruyette weighed in Wednesday morning. Analyst Tim Switzer said the Muddy Waters report tied together information from UCC filings and bills of sale with SoFi’s regular investor disclosures.
Switzer noted that most Wall Street analysts were likely already aware of the accounting issues raised. He said future stock movement may hinge more on retail investors, who are “less aware of the intricacies of SOFI’s accounting/business model.”
Keefe kept its Underperform rating on SoFi with a $20 price target. The stock closed Tuesday at $17.37.
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