Please ensure Javascript is enabled for purposes of website accessibility

Why BofI Holding Stock is Dropping Today

By Jordan Wathen - Apr 14, 2016 at 12:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Documents from a class-action suit are reinvigorating investor fears first stoked by a former auditor in 2015.

What: Shares of BofI Holding (AX 3.85%) are plunging Thursday, trading down by 13% as of 10:30 a.m. EST.

So what: The stock is likely reacting to the circulation of a class action suit against BofI Holding and some of its executive officers filed by the Houston Municipal Employees Pension System.

The plaintiff alleges that BofI Holding engaged in unlawful lending practices, violated federal laws in identifying its customers, and failed to maintain adequate controls over its operations, among various other, more specific, allegations.

The filing references several interviews with former BofI Holding employees, who it identifies only as numbered confidential witnesses. One is quoted as saying "internal controls were whatever Greg [Garrabrants] wanted them to be...We have internal controls on paper, but were they ever followed? No." Greg Garrabrants is the bank's Chief Executive Officer. 

Another confidential witness, who became uncomfortable with the company's lending practices while working for the company, said that "it started to become very rare that we would deny a loan." Yet another witness suggested that BofI Holding's management made decisions based on how it would appear in the company's quarterly and annual reports for shareholders.

One potentially very damaging revelation is that one former employee observed that BofI Holding was using one appraiser for its multifamily loans. In one instance, the appraiser called the former BofI underwriter and stated that the property needed to be appraised for $18 million to satisfy BofI Holding's requirement for a loan-to-value ratio to fund the loan.

Now what: BofI Holding's business model and operations have come under scrutiny from investors after a former auditor filed suit against the company in late 2015, believing he had been fired for revealing wrongdoing to federal regulators and BofI Holding management.

These class action documents, which detail conversations with several former BofI Holding employees, suggests that the auditor who sued the company in 2015 was not alone in worrying about the bank's business practices, reinvigorating investor concerns from last fall. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Axos Financial, Inc. Stock Quote
Axos Financial, Inc.
AX
$36.65 (3.85%) $1.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.