Last week, shares of SoFi Technologies (SOFI) – once a fintech darling – slipped 4.44. That added to a year-to-date loss now north of 35%. Attribute some of last week’s stumble to a bearish report issued by Muddy Waters. Put simply, the short seller’s report questioned some of SoFi’s accounting practices. It also acknowledged it’s short the stock. Obviously, headlines like those aren’t conducive to long positions in the stock. They’re certainly not favorable for the Direxion Daily SOFI Bull 2X ETF (SOFA), which attempts to deliver 200% of SoFi’s daily performance. However, this is where things get interesting — for both SoFi shareholders and SOFA traders.
The company isn’t taking the Muddy Waters report lying down. In fact, SoFi has threatened legal action against the short seller. There are other reasons why SOFA may be worth examining over the near-term.
SOFA Catalysts Could Emerge
It remains to be seen if SoFi pursues legal action against Muddy Waters. After all, threats are merely words; they can stay that way. More relevant to traders mulling SOFA, executives at the company responded to the bearish report by buying the stock. That signals to investors that they see value in the battered shares.
The California-based financial services company also made clear that its accounting practices are in compliance with what’s expected of U.S.-listed companies.
“SoFi maintains strong confidence in the integrity of our financial reporting,” said the company in a statement. “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. Additionally, we are a bank holding company regulated by the Federal Reserve and operate a bank that is regulated by the Office of the Comptroller of the Currency, among other regulators.”
And while it might not mean much to long-term SoFi shareholders and traders eyeing SOFA, the company also had some choice words for its new adversary.
“Muddy Waters is known for producing reports designed to erode shareholder value solely to allow short sellers to profit from a declined stock price,” it said in the statement. “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. We have reviewed the full report and believe it is designed to deceive investors.”
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