SoFi Stock’s Brutal Year Isn’t Changing Muddy Waters’ Mind: Why Short Seller Is Doubling Down On Its Bearish Bet

On a podcast last week, the short seller said SoFi Technologies remains one of the most compelling short ideas amid its accounting practices that operate in a legal gray area.

• At the heart of the short-seller’s allegations were SoFi’s use of fair value options to account for its loans. 
• Block explained that, contrary to practices where a bank provisions for losses on loans and could eventually mark them up over time, SoFi immediately marks a loan higher to reflect income instantly. 
• While Block acknowledged that he did not have the full picture, and that the transactions could still be legal, he doubled down that they would likely be “just on the right side of the line, if it is.”

Muddy Waters Research founder Carson Block defended his firm's short position on SoFi Technologies Inc. (SOFI), once again raising questions about the fintech company’s accounting practices.

On “The Meb Faber Show” podcast from last week, Block said SoFi remains one of the most compelling short ideas. He said that the bigger concern over outright fraud is accounting practices that operate in a legal gray area, alleging that SoFi's practices are “possibly over that line, but at best it's really close to the line.” 

Block's latest remarks follow Muddy Waters' allegations from earlier this year that SoFi used “Enron-esque off-balance-sheet structures” to mask debt and inflate revenue. SoFi had denied the claims at the time, saying its disclosures comply with U.S. GAAP and SEC requirements. SoFi was not immediately available to respond to Block’s latest comments.

Muddy Waters Questions SoFi’s Loan Sales

At the heart of the short-seller’s allegations were SoFi’s use of fair value options to account for its loans. The practice allows companies to record eligible financial assets and liabilities at the current market price rather than historical cost.

Block explained that when a bank offers a loan, it would typically mark it down to provision for losses and could mark it up over time to reflect the market price and record income. By contrast, he alleged that SoFi immediately marks a loan higher up, potentially listing a $100 loan at roughly $108 or $109 under the fair value option.

“It's bleeding edge financial engineering,” he said, adding that “until this year, it was the only bank that I could identify that with at least $20 billion in assets that was using a particular type of accounting for its loans and for substantially all of its loans.”

He also claimed that SoFi had not disclosed how it was financing these loans. “So it looks to be lending 80-90% of the purchase consideration. You know, we found this at about 5%, and these are in loans that are yielding 13%,” he said.

According to Block, SoFi did not disclose that its secured lending program financed purchases of its personal loans. He said the Securities and Exchange Commission (SEC) later sought additional disclosures, but added that he believed the personal loans were subsidies and that they were made below market terms.

“It wasn't a loan sale,” he said, adding that the $312 million was a transfer to a consolidated subsidiary of its own. “And JPMorgan loaned money to that subsidiary to send up to SoFi. But SoFi is claiming, no, we actually sold the entity to JPMorgan. Now, that appears to be very misleading.”

Muddy Waters Wants Better SOFI Disclosures

Block said that while this was a relatively small transaction, “it supports all the marks that they previously made, that they continue to make. And our view is, if this were disallowed, pulling that linchpin would force a restatement of, like, a billion dollars of previously reported EBITDA.”

He also said that in his view, the transactions appeared to be like an “upside down pyramid” supporting model-driven, highly aggressive, and effectively fictitious gains. He added that the management has profited from this, by entering into forward agreements where they still technically own the stock but “were able to take over $50 million off the table.”

While Block acknowledged that he did not have the full picture, and that the transactions could still be legal, he doubled down that they would likely be “just on the right side of the line, if it is.” He also added that he hopes that “somebody pries this open from the regulatory perspective.”

SOFI Stock: What Retail Traders Think

On Stocktwits, retail sentiment around SOFI was ‘bearish’ at the time of writing amid ‘normal’ message volumes. SOFI stock was edging higher in the overnight session at the time of writing. 

One user said, “Feel sorry for the longs that seem to have unlimited hope here.”

View this Stocktwits post

Retail-trader interest, however, has been strong in recent times. SOFI’s follower count on Stocktwits has surged by more than 14% over the past year, while chatter has rocketed by over 1,000% in the past month alone.

SOFI stock is down about 38% so far this year, on track for its worst annual performance since 2022. Despite posting strong top-line numbers in its first quarter, the fintech firm’s technology platform revenue fell 27%, bogged down by the exit of a major client before the end of 2025.

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Also Read: SoFi Stock Eyes Worst Quarter In 4 Years: Muddy Waters Returns With Fresh JPMorgan Deal Warning, Warns Of $1B EBITDA Risk