Short report accuses SoFi of 'Enron-esque' accounting practices

Prominent short seller Muddy Waters Research is accusing SoFi Technologies, Inc. (SOFI) of being "a financial engineering treadmill, not a healthily growing origination business" in a new report.

The firm revealed its short position while alleging that SoFi had a material misstatement of at least $312 million of unrecorded debt. It added that if it is correct in its allegation, "it raises the possibility that there are more extensive misstatements we have not detected."

Muddy Waters argued that SoFI shareholders are being incessantly diluted as management attempts to "hit bonus targets" through what it called "Enron-esque off-balance-sheet structures that disguise borrowings as revenue."

Enron Corporation was of course the Houston, Texas-based company that went from being a $100-billion energy giant to collapsing into bankruptcy in 2001 after a massive and deliberate accounting fraud scheme was uncovered.

According to Muddy Waters, SoFi's personal loan business has a charge-off rate of about 6.1%, rather than the 2.89% it reports. It alleges that the company "manipulates the rate" by disposing of the loans before hitting the charge-off threshold and then "seemingly parking defaulted loans off balance sheet."

By doing this, Muddy Waters alleges that SoFi produced $259 million in unwarranted fair value gains on personal loans in 2025, which is about 25% of its reported adjusted EBITDA.

The short report also alleged that SoFi's student loan business "appears to exist primarily to generate Fair Value gains for management bonuses; not for strategic or economic reasons."

“In 2025, for student loans SOFI used a discount rate of 3.89%, which was 27 basis points below the 10-year U.S. Treasury yield,” the report stated. “This produced $247 million of paper gains. Discounting at ~7% inside the comparable Treasury implies a negative risk premium on consumer credit.”

SoFi says report shows 'fundamental lack of understanding'

According to Muddy Waters, SoFi's loan platform business (LPB) "appears to be a wet-funded forward flow transaction—a disguised form of borrowing whose loan proceeds SOFI books as fee income."

"The arrangement is structurally analogous to the VIE (variable interest entities) structures Enron used to keep debt off its balance sheet," the firm said. "The LPB appears to have grown directly out of the Secured Loan program when that program attracted the SEC’s attention."

Muddy Waters directly called out SoFi's chief executive in its report.

“Per our estimates, and excluding external financings, it is increasingly likely Anthony Noto would lose substantially all of his $10+ million PSU performance bonus if not for the intellectually dishonest and misleading financial reporting we have outlined in this report,” it said.

SoFi shares closed 1.5% lower on Tuesday and dropped just over 1% on Wednesday. Its stock is down more than 34% so far this year.

SoFi pushed back on the short report issued by Muddy Waters, saying in a statement that the report from Muddy Waters shows "a fundamental lack of understanding of our financial statements and business."

"Muddy Waters is known for producing reports designed to erode shareholder value solely to allow short sellers to profit from a declined stock price," the company said. "In fact, their report discloses their intent to begin covering a substantial majority, possibly all, of their short positions immediately upon publication, and therefore they stand to profit from their own misleading report."

SoFi noted that it would explore taking legal action against Muddy Waters.

"SoFi maintains strong confidence in the integrity of our financial reporting," it added. "We are a highly regulated public company with financial statements and extensive disclosures prepared in conformity with U.S. GAAP and the rules and regulations of the SEC, supported by robust internal controls and procedures."