Donald Trump used to financial institution with the large weapons. Now he’s borrowing from Axos Monetary, an obscure, internet-only establishment based mostly in San Diego and Las Vegas.
In mid-February, Axos refinanced a $100 million Trump Tower mortgage due in September, a New York Metropolis Finance Division doc reveals. The brand new mortgage was made simply days after The Trump Group’s auditor resigned, saying that 10 years of the corporate’s monetary statements couldn’t be relied upon.
In lending to The Trump Group, Axos is stepping up when different banks have balked. However this isn’t unheard-of for Axos. An examination of authorized filings, inner paperwork and land information reveals Axos has a historical past of dealing with atypical loans.
Axos has teamed up with nonbank lenders on loans to small companies that carried cripplingly excessive double- and triple-digit efficient annual rates of interest, mortgage paperwork present. The financial institution has additionally specialised in loans to international nationals, inner paperwork and its web site state, and has supplied a kind of mortgage that permits debtors who paid money for a property to show round and immediately take cash out. Such loans might pose cash laundering dangers, banking analysts say.
The financial institution has additionally been sued by two former workers who say they have been wrongfully fired after they raised questions on its practices. On March 21, Jennifer Brear Brinker, employed in 2018 to assessment the financial institution’s mortgage portfolios for its Governance, Danger Administration and Compliance Division, filed go well with in opposition to Axos in federal courtroom in California.
Brinker accused the financial institution of deliberately understaffing its compliance division “in an effort to hide its failure to adjust to federal banking rules” and contends she was terminated in January 2021 whereas finishing a report highlighting deficiencies at Axos together with “vital points within the financial institution’s anti-money laundering practices.”
A spokesman for Axos, who requested to not be recognized, mentioned the financial institution disputes Brinker’s allegations “and her notion of the underlying factual circumstances.” Axos intends to defend in opposition to the lawsuit vigorously, the spokesman added.
A lawyer representing Brinker declined to remark additional on her case however mentioned they each stay up for proving her claims in courtroom.
Later this month, Axos is scheduled to face a former inner auditor in a wrongful termination case in California federal courtroom. That auditor, Charles Matthew Erhart, 35, was fired by Axos after he raised considerations about its practices, his 2015 lawsuit says. Amongst different practices alleged by Erhart — Axos allegedly did not advise regulators of considerable and dangerous loans to doubtful debtors, didn’t open up to regulators that it had acquired grand jury and different subpoenas, improperly denied that it held paperwork attentive to a Securities and Trade Fee subpoena and instructed workers to not talk with regulatory officers.
The financial institution’s spokesman mentioned it denies each one in every of Erhart’s allegations. “All have been investigated, each internally by Axos’s audit committee and unbiased counsel, and externally by authorities regulators and out of doors auditors,” the assertion mentioned. “Not one of the investigations or audits discovered any benefit in Erhart’s allegations.”
Axos was based in 2000 as Financial institution of Web USA, or BofI, a digital enterprise with no brick-and-mortar branches; it modified its title to Axos in 2018. Its shares commerce on the New York Inventory Trade.
With $15.5 billion in property on the finish of 2021, Axos is a comparatively small, federally chartered financial savings establishment. J.P. Morgan Chase, by comparability, holds over $3 trillion in property. Some $12.6 billion of Axos’ property are loans, together with residential mortgages and loans on business actual property and multi-family dwellings, SEC filings present.
Axos is overseen by Gregory Garrabrants, a lawyer, former Goldman Sachs banker and McKinsey & Co. advisor. Earlier than becoming a member of Axos in October 2007, Garrabrants was an govt at Indymac, an enormous California financial savings & mortgage that collapsed in July 2008 underneath a mountain of poisonous mortgages, based on financial institution regulators. Indymac was one of many nation’s greatest financial institution failures, costing the FDIC fund greater than $10 billion, a authorities investigator estimated.
Axos has been a quick grower and has turned in a torrid inventory efficiency in recent times. In 2018, Garrabrants earned $27 million, simply 10 p.c lower than the $30 million acquired by Jamie Dimon, the chief govt of JPMorgan Chase.
In lending to the Trump Group, Axos is forging ties with a borrower that has proved troublesome for different banks through the years, with a number of bankruptcies greater than a decade in the past and plenty of lawsuits.
Axos declined to remark concerning the phrases of the mortgage and the Trump Group’s spokeswoman didn’t reply to an electronic mail looking for remark from NBC Information. However Eric Trump instructed CNN in a press release that “Trump Tower is without doubt one of the most iconic properties on the earth and sits on arguably essentially the most prestigious nook in all of New York. We now have extremely low debt, have an incredible amount of money and have an especially worthwhile firm. We had no downside refinancing.”
In September, Forbes valued the business workplace and retail house backing the $100 million Trump Tower mortgage Axos refinanced at $285 million; Gucci is a retail tenant on the bottom flooring, paying an estimated $24 million a 12 months.
The $100 million Trump Tower mortgage represents a big mortgage for a financial institution the dimensions of Axos. As a financial savings affiliation, Axos is topic to limits on loans to 1 borrower based mostly on a measure of its capital. On June 30, 2021, that restrict was $203.8 million, the financial institution’s filings present, and its largest excellent mortgage steadiness was $145 million.
For fiscal 12 months 2021, Axos held $3.2 billion in business actual property loans, or 27.5 p.c of its complete loans. Most have been on properties in California, its regulatory filings present. The brand new Trump Tower financing will increase Axos’ lending in New York state by nearly 30 p.c, based mostly on its December 2021 holdings.
Axos held $4.4 billion in single-family mortgages in 2021 or 38 p.c of its loans held for funding.
In her lawsuit, former worker Brinker alleged that in 2020 Axos tried to hide issues with house loans made to debtors by A & D Mortgage, a Hollywood, Fla.-based nonbank mortgage lender financed by Axos. The financial institution failed to inform its board or its traders the loans had change into issues, Brinker alleged. A&D Mortgage was funded by an Axos credit score line for 5 years, from April 2016 to April 2021, Uniform Business Code filings present.
A&D would promote the mortgages it had underwritten utilizing Axos’s line of credit score right into a pool of loans packaged and issued by a associated entity referred to as Imperial Fund Capital Companions. However when Covid struck, traders refused to purchase the safety and the loans remained as collateral backing Axos’s credit score line for longer than the 60 days the financial institution’s coverage allowed, based on Brinker’s lawsuit.
A&D Mortgage is headed by Maksim Slyusarchuk, based on Florida company information, who described himself in a 2013 lawsuit he filed in Miami-Dade County as “a world businessman with expertise within the Russian markets and in worldwide finance.”
Slyusarchuk additionally owns 50 p.c of Imperial Fund Capital, an SEC registered funding adviser with $316 million underneath administration; it swimming pools mortgages into securities and sells them to traders. One in all its models, Imperial Fund II LLC, is financed by Sovcombank, a UCC submitting reveals, Russia’s ninth largest financial institution. Sovcombank was sanctioned by the U.S. Treasury on Feb. 24.
Neither A&D Mortgage, Imperial Fund nor Slyusarchuk responded to an electronic mail message looking for remark.
On its web site, Axos says it has in depth expertise in mortgage lending to “nonresident aliens” and presents loans of as much as $20 million accompanied by 50 p.c down funds. A 2014 investor presentation famous that the financial institution specialised in lending to Chinese language nationals, for instance, who shouldn’t have tax returns that they’ll current to doc their monetary standing.
Axos has additionally made loans to Russian nationals; requested concerning the threat of such lending given the Ukraine invasion, the Axos spokesman mentioned they signify a fraction of 1 p.c of Axos’ loans. “All such loans have been accomplished at low loan-to-value ratios and are effectively secured,” he added.
The 2014 Axos investor presentation additionally reveals the financial institution supplied so-called money recapture loans, made to people paying money in full for a property who need “to recoup a few of their funding.” The financial institution required no ready interval to money out, the presentation famous, however mentioned the supply of the preliminary buy funds “have to be sourced/seasoned.” Financial institution analysts say such loans might elevate the danger of cash laundering.
The Axos spokesman mentioned the financial institution conducts “a full, know-your-customer investigation” of every cash-recapture mortgage applicant. The loans are “topic to strict underwriting and program qualification parameters,” he mentioned, “designed to make sure full compliance with Anti-Cash Laundering and Financial institution Secrecy Act legal guidelines and all different authorized or regulatory necessities.”
Axos has additionally teamed up with some aggressive non-bank lenders charging sky-high rates of interest to small enterprise debtors, NBC Information has beforehand reported. The financial institution carried out a few of these preparations by way of its unit in Nevada, a state with no rate of interest limits, permitting downstream lenders to evade state usury caps on loans they made to debtors working in additional restrictive jurisdictions. Predatory lending consultants name these preparations “rent-a-bank schemes,” and so they have been permitted underneath a Trump-era banking rule. Final 12 months, President Joe Biden signed a decision rescinding the rule.
Axos disputed that this enterprise concerned “rent-a-banks” and mentioned its operation was “a financial institution sponsorship program, operated in order to be absolutely compliant with authorized and regulatory necessities, by way of which it entered into agreements with a number of third-party service suppliers.” All however one in every of these packages have been wound down, the spokesman added.
Joint curiosity settlement
Lately, Axos has aggressively pursued nameless bloggers who posted vital analyses of the financial institution’s actions on investing web sites, courtroom paperwork present. In 2017, Axos joined forces with high executives at MiMedx Group, a previously high-flying maker of pores and skin grafts, to determine nameless critics of the businesses. Axos and MiMedx entered right into a “joint curiosity settlement” to analyze the critics, courtroom paperwork and inner emails present.
Two of the highest MiMedx executives with whom Axos pursued the joint curiosity settlement — former chief govt Parker Petit and former COO William Taylor — have been convicted of fraud in 2021 and sentenced to jail in a case unrelated to Axos. A lot of what had been alleged about MiMedx by the critics it focused turned out to be correct, the felony case confirmed.
A spokeswoman for MiMedx mentioned the corporate doesn’t touch upon authorized issues however famous that its “senior management workforce and board of administrators are fully new since 2019.”
Relating to its association with the convicted former MiMedx executives, the Axos spokesman mentioned that when it struck the settlement with Petit and Taylor, Axos wanted to speak with MiMedx concerning the actions of traders who had guess in opposition to each firms and publicized these bets. He added that “the reality of allegations in opposition to MiMedx was unknown and the corporate and its executives appeared to get pleasure from a good popularity.”
The Erhart case
Later this month, the 2015 wrongful termination case filed by Erhart, the previous Axos auditor, is scheduled to go to trial. Erhart‘s lawyer, Carol Gillam, declined to touch upon the case.
Erhart started working at Financial institution of Web, as Axos was identified on the time, in Sept. 2013, paperwork present. Beforehand an examiner on the Monetary Trade Regulatory Authority, he’d led an examination that recognized a dealer who allegedly stole $4.2 million from his prospects, his lawyer mentioned.
A local of rural Kansas who put himself by way of the College of Kansas engaged on an meeting line and a street building crew, Erhart started figuring out issues quickly after he was employed at Axos, based on his grievance. He says he expressed considerations about focus threat on the financial institution, for instance, noting to superiors that simply 9 of its prospects accounted for 40 p.c of its complete deposits. Erhart alleges that he was suggested by his boss’s superior to not put that info in an electronic mail.
A few of Erhart’s allegations about Axos’s practices needed to do with the Financial institution Secrecy Act, which goals to curtail and detect cash laundering and loans to what banking regulators name “politically uncovered individuals.” They’re individuals who, due to their public positions or relationships, “might current a threat increased than different prospects by gaining access to funds that could be the proceeds of corruption or different illicit exercise.”
Banks are supposed to gather details about prospects’ threat profiles to observe and decide whether or not a shopper’s banking actions are suspicious. Erhart contended in his lawsuit the financial institution made materials alterations of “quite a few reviews” required underneath the Financial institution Secrecy Act’s high quality management guidelines and didn’t disclose substantial loans to criminals and politically uncovered individuals. In early 2015, Erhart’s grievance says, he uncovered details about debtors who uncovered the financial institution to popularity threat, together with “very excessive stage international officers from main oil-producing international locations and struggle zones.” He didn’t determine particular debtors within the grievance.
In March 2015, Erhart turned over financial institution information to Axos’s important regulator, the Treasury Division’s Workplace of the Comptroller of the Forex, his grievance mentioned. He emailed the knowledge he had compiled to his mom for safekeeping. He was fired in June 2015.
The OCC has not taken regulatory motion in opposition to the financial institution. Erhart now works as a accomplice at a cryptocurrency consulting agency.
“Within the years since Erhart first made his allegations,” the financial institution’s spokesman mentioned, “Axos has suffered no antagonistic enterprise occasion, no restatement, no spike in reserves, no lack of a serious contract, no materials weak spot disclosure, no earnings miss. Impartial auditors and authorities regulators — all with full information of all Erhart’s allegations — have persistently issued clear audit opinions, handed examinations, and granted additional regulatory approvals for greater than seven full years.”
Requested to provide copies of the clear audit opinions and examinations, Axos declined, saying they’re confidential.
The corporate did provide a replica of a 2017 letter from the Securities and Trade Fee saying it had closed an investigation into Axos and didn’t intend to advocate an enforcement motion in opposition to the financial institution. Nonetheless, the SEC mentioned its letter “should on no account be construed as indicating that the occasion has been exonerated or that no motion might in the end outcome from the workers’s investigation.”
In a separate civil case in 2017, Garrabrants sued Erhart alleging that he had stolen his confidential info. The financial institution additionally sued Erhart’s mom in Kansas, to whom the previous auditor had despatched details about the financial institution’s actions for backup. Axos settled the case in opposition to Erhart’s mom; it declined to state the phrases.
Garrabrants’ case in opposition to Erhart went to trial final fall. The jury discovered that Erhart had violated California regulation “in reference to theft of Garrabrants’ private, confidential, and monetary info,” the financial institution’s spokesman mentioned.
Gillam, Erhart’s lawyer, supplied a press release on this go well with. “The paperwork Mr. Erhart accessed that associated to Mr. Garrabrants have been in financial institution recordsdata he discovered in the middle of doing his work as an inner auditor,” she mentioned. “They have been solely used to help Mr. Erhart’s allegations of wrongdoing that he offered to the financial institution’s principal regulator, the Workplace of the Comptroller of the Forex.”
The jury “rejected Garrabrants’ declare of intentional infliction of emotional misery and awarded him $1,500 on an invasion of privateness declare,” Gillam added. On an anti-hacking allegation, the jury awarded $1 to Garrabrants, an quantity he had requested.
Erhart is interesting that verdict, Gillam mentioned.
In late February, Axos additionally entered right into a settlement settlement with a Houston Municipal pension fund that had sued the financial institution in 2015. That matter, which grew to become a category motion, alleged securities fraud largely based mostly on Erhart’s allegations.
The phrases of the settlement haven’t but been made public. When requested why the financial institution was settling now, its spokesman mentioned: “Whereas Axos continues to imagine that it will have prevailed at trial, this settlement permits Axos to keep away from the distraction and continued expense of litigation.”