Even after strong earnings growth, BofI shares have been held down by short sellers. Image source: Getty Images.

What: Shares of BofI Holding, Inc. (NYSE:AX), the parent company of Bank of Internet USA, are up more than 10% at 3:25 p.m. EDT on Aug. 3, following the release of the company's fourth-quarter and full-fiscal year 2016 earnings after the market closes on Aug. 2.

So what: BofI reported net income rose 22% in the fourth quarter, and that full-year profits were up a remarkable 44%, driven by strong loan portfolio growth, more cost-efficient operations, and the benefit of the first tax season acting as the banking partner for H&R Block, which led to record fee-based income. 

BofI ended fiscal 2016 with $7.6 billion in total assets, up more than 30% from last year. 

Now what: BofI's stock remains one of the most heavily shorted stocks out there, with about 40% of available shares sold short at last count, because of allegations that have been ongoing for more than one year, largely around a former employee who has tried -- and failed -- to gain whistleblower status. 

However, there's some evidence that the short thesis is starting to unravel. The former employee, Matt Erhart, was recently placed under a restraining order, while his attorney was forced to disclose her communications with short sellers, the media, and other third parties, where it was discovered that she had disclosed confidential BofI information to these parties. 

Furthermore, BofI has also undergone multiple state and federal regulatory reviews in the roughly 18 months since the alleged wrongdoing, as well as an independent investigation by one of the world's largest, most reputable law firms. Not only did the law firm find no evidence of wrongdoing at the company, but the bank has also remained in good regulatory standing. CEO Greg Garrabrants said the following on the earnings call:

The bank is in strong regulatory standing with no enforcement actions, has not been fined a single dollar by any regulatory agency, and has not been required to modify its products or business practices. Additionally, we do not foresee any further impact to the underlying business as a result of the frivolous lawsuit and the short seller hit-pieces. Our management team and employees remain focused on running the business.

So far, there's been no smoking gun found, while BofI has consistently delivered strong earnings growth. At some point either something will turn up -- which seems unlikely, considering it's been more than a year and regulators have yet to go after the bank -- or short sellers will move on.

If it's the latter, which seems more likely with each passing quarter, long-term investors who ride things out could do very well, and benefit from what would be short-squeeze of potentially epic proportions. Looking for more in-depth earnings coverage? Stay tuned for a deeper dive in coming days. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.