Short seller Muddy Waters has once again targeted SoFi Technologies (SOFI), the digital banking and lending platform. In a new research report published on Monday, the firm highlighted that SoFi must restate more than $312 million in loans on its balance sheet. The activist firm alleges that SoFi’s management treated a financing deal with JPMorgan (JPM) as an outright sale.
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This accounting maneuver boosted reported profits and executive bonuses, but effectively dilutes shareholder value by about 15% annually. SOFI shares fell 1.3% in after-hours trading yesterday on the news.
On March 17, Muddy Waters disclosed its short position on SoFi stock, citing accounting practices that make the company’s financials look better. The firm alleged that these practices were likely tied to management bonuses.
Borrowing Money and Booking It as Loan Sale
In its first report, Muddy Waters flagged this $312 million as hidden borrowing. SoFi confirmed the amount is not recorded as debt on their books and was booked as a loan sale in Q3 2024. However, Utah legal filings suggest it was structured more like financing. This has prompted Muddy Waters to argue for restatement.
They predict the fix will be much bigger, including restating about $1 billion in past EBITDA (earnings before interest, taxes, depreciation, and amortization) and sharply lowering capital ratios.
The firm dropped a detailed 28-page report claiming SoFi’s 2025 Adjusted EBITDA, a key profit measure, is overstated by almost 90% due to such accounting tricks. SoFi fired back with a press release that failed to address specific facts in the report. Then, CEO Anthony Noto bought $500,000 in stock, a move some view as a vote of confidence.
Muddy Waters argues that this is tiny compared to the $58.3 million Noto and CFO Chris Lapointe already realized via prepaid variable forward contracts (a way to cash out without fully selling shares). Days later, SoFi has yet to provide explanations for any of Muddy Waters’ claims. The firm believes that SoFi’s silence on its questions backs up its findings.
Is SOFI Stock a Buy?
Analysts remain cautious about SoFi’s long-term outlook amid its shift from lending to full-service banking. On TipRanks, SoFi has a Hold consensus rating based on five Buys, eight Holds, and three Sell ratings. The average SoFi Technologies price target of $25.50 implies 68.3% upside potential from current levels. Year-to-date, SOFI shares have fallen 42.1%.
