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BOFI: The Panama Papers, Criminals, And Exotic Loans To High-Risk Foreign Nationals

BOFI's whistleblower and former executives allege that the bank is making bad loans to criminals and unverified foreign-nationals but BOFI's embattled CEO has declared that "those stories are complete fabrications".

My examination of public records reveals that BOFI is indisputably making loans to criminals and high risk foreign nationals from corruption-riddled countries such as Russia, Ukraine, Colombia, Venezuela, and China.

My research traces BOFI lending clients (and shell-companies) back to high risk individuals named in the Panama Papers, introducing undiscounted risks that serious potential BSA/KYC/AML violations have already occurred.

A convicted felon is reportedly in charge of BOFI's foreign-national lending program, the loans contain irregularities and exotic asset pledges, are starting to default, and introduce more troubling accounting questions.

I believe these findings act to confirm the public allegations of BOFI's whistleblower and former executives while further discrediting management's statements and assurances to investors.

"Those stories are complete fabrications"

-BOFI CEO, Greg Garrabrants, on April, 2016 Conference Call

As part of Bank Of The Internet's (NASDAQ:BOFI) ongoing whistleblower and securities fraud suits, a variety of troubling public allegations have emerged from former employees, internal auditors, and executives. Some of the most specific and incredible details relate to the bank's foreign national lending program, which is reportedly run by the senior BOFI executive that is a convicted felon (and was previously profiled here). The former employees and executives (including a former officer) have publicly detailed alleged loans that BOFI made to criminals, politically exposed persons ("PEP"), and unverified foreign nationals and assert that these loans put BOFI at great risk of violating stringent Bank Secrecy Act ("BSA"), Know Your Customer ("KYC"), and Anti-Money Laundering ("AML") rules:

Source: Houston Municipal Employees Pension System, et al. v. BofI Holding, Inc., Case No. 3:2015-cv-02324 (U.S.D.C., S.D. Cal.) Above Photo: BOFI's alleged head of foreign national lending. Photo Source

BOFI's SEC filings contain no mention of foreign national lending and after the wild details contained in the Houston Municipal fraud suit recently emerged (Including alleged loans tied to a Salvadoran gambling gang and a Venezuelan trust), BOFI's CEO, Greg Garrabrants, has dismissed the allegations as "complete fabrications" on recent conference calls:

When I said the statement about it [The Houston Pension Fraud Suit] being riddled with fabrications and inconsistencies et cetera that was an understatement of just how inaccurate that is. Those stories are complete fabrications and leave out so many facts that render them to be complete, render the reader to have a completely different impression of those transactions than they otherwise would have. (April, 2016 Conference call)

Just recently, however, news broke that revealed the existence of a second alleged whistleblower, who was a single family quality control auditor (with prior experience at JP Morgan (NYSE:JPM)).

What did a seasoned loan auditor find in BOFI's lending book that would lead her to allegedly take a laptop of information in an apparent effort to assist government investigators?

Is BOFI lending to criminals and high risk foreign nationals, or not?

I recently conducted a review of public records of loans that BOFI has made in Florida (particularly Miami). This review indisputably confirms that BOFI has made loans to criminals and numerous foreign nationals (and their shell companies) that hail from fraud-riddled countries such as Russia, Ukraine, Colombia, Venezuela, and China. Furthermore, my research has traced BOFI-funded borrowers back to high risk individuals named in the Panama Papers. I believe this introduces undiscounted risks that serious potential BSA/KYC/AML violations may have already occurred. Furthermore, my loan review turned up significant irregularities in the loan documents as well as increasing evidence that BOFI's foreign national loans are starting to default (making the recently reported increase in past due mortgages particularly notable). I believe these findings, sourced entirely from public documents, act to confirm allegations of BOFI's whistleblower and ex-employees while further discrediting management's statements and assurances to investors.

While I found other suspect loans, for purposes of brevity, this article shares the details of three selected loans that I believe investors and taxpayers deserve to know about. Investors are encouraged to conduct their own due diligence into these factors.

(Note: All information for this article was derived from publicly available information. The loans discussed are not the only suspect loans identified in my sample and an explanatory note at the end explains how interested readers can publicly obtain Miami mortgages and search the Panama Papers database for free. For purposes of simplicity, the Panama Papers will be referred to synonymously will the Offshore Leaks. A brief primer on the Panama Papers can be found here)

This article does not mean to allege or imply that any un-convicted individuals discussed herein have engaged in any illegal acts. There are legitimate uses for offshore companies and trusts.

A BOFI-Financed Sex Offender And A School

One of the first mortgages I obtained, in my opinion, immediately contradicts BOFI's assertions regarding loans to criminals. Public records show that BOFI issued a $2.4 million loan to a Florida LLC named L & D Investors, LLC on an apartment building just outside of Miami. While this loan may appear normal on the surface, there is a major problem: the entity traces back to a registered sex offender named Leon F. Machin.

Source: Miami-Dade County Recorder's Office

This individual signed BOFI's mortgage documents (above) and if the bank did basic diligence on him (such as a Google search) they should have immediately become aware that he is a registered sex offender. The LLC's annual reports, which BOFI presumably obtained, include a residential address that is identical to the address on the State of Florida's Sex Offender / Predator public...