SoFi's aggressive fair value accounting risks restatement
The bear case argued for SoFi Technologies is that its aggressive use of fair value option accounting for personal loans relies on misleading, subsidized transactions to support inflated marks, risking a massive restatement.
The argument
The guest argued that SoFi uses a 'fair value option' to mark up its loans on day one to 108% or 109% of par. To justify these marks to auditors, the guest claims SoFi financed the buyers of its loans via undisclosed secured lending programs and executed a misleading $312 million transaction to a consolidated subsidiary to simulate a market-rate sale. If regulators or auditors disallow this accounting treatment, it could force a restatement of up to $1 billion in previously reported EBITDA.
The thesis, stress-tested
✓ What validates it
- ✓SEC enforcement action or formal restatement of historical financials
- ✓Auditor Deloitte forcing a change in fair value option accounting policies
▸ Risks discussed
- ▸Regulators or auditors may ultimately accept the accounting treatment as legal
- ▸The company's share buybacks or corporate actions could squeeze short sellers
Hear it yourself
"Is there a situation of trust decay, like, as far as enforcement? Is there a situation where Chanos used to call this, the golden age of fraud? You gotta say golden age of grift, I think, on politicians in both sides of the aisle too. How do you think about that in a world of being someone who's who's traditionally, you know, biased to the downside, to the short side? So as a short seller, you do depend on institutions like the SEC and the DOJ to actually have substance. But the problem is, so if you look at it politically, when the Democrats are in charge, like we have with Biden and Gary Gensler SEC, It's just"
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