Axos, the Trump Tower Bank, Is Almost as Shady as He Is

Donald Trump has succeeded in refinancing Trump Tower. That’s no small feat. The Trump Group has mountains of debt and develop into a monetary pariah. The corporate’s longtime accountant, Mazars, just lately deserted the Trumps — amid a New York state investigation into whether or not the corporate systematically manipulated the worth of its belongings. The accounting agency mentioned it might not vouch for the accuracy of a decade’s price of Trump Group monetary statements, insisting these paperwork “ought to not be relied upon.”

However an web financial institution referred to as Axos has stepped up with a monetary lifeline for the previous president’s firm, working with the Trump Org. to refinance Trump Tower for a cool $100 million, in a transaction first reported by Forbes. Eric Trump launched an announcement defending the deal, insisting his household firm was “very worthwhile” and had “no drawback refinancing.” (Axos declined to remark for this story. The Trump Group didn’t reply to a request for remark.)

Axos is an uncommon lender, steeped in controversy. Its CEO and high buyers have robust monetary ties to the GOP. And Axos seems to be solidifying its place because the Trump-family banker, having beforehand stepped in as a financier for the household firm of Trump’s son-in-law Jared Kushner.

The deal comes at a time when the Trump Org. faces authorized peril from metropolis and state regulators in New York. It affords a window into the Trump firm’s monetary standing, on condition that it needed to flip to a politically related on-line financial institution — and never a serious Wall Avenue establishment — to refinance the mortgage on the corporate’s most iconic property. And the deal creates the likelihood for yet one more obvious battle of curiosity ought to Donald Trump run for president once more in 2024.

Axos Financial institution? By no means Heard of It

With headquarters in San Diego and Las Vegas, Axos just isn’t a serious monetary participant, with a market cap beneath $3 billion. (Financial institution of America, in contrast, is price $327 billion.) The agency launched on July 4th, 1999, as one of many nation’s first digital banks — identified then as Financial institution of the Web USA. It went public in 2005 with the inventory ticker BOFI.

The corporate has grown aggressively — and left many aggrieved events in its wake — because it has sought to disrupt conventional banking. The agency rebranded in 2018 as Axos (with the even bro-ier inventory ticker AX) within the wake of an SEC investigation and a spate of lawsuits. (The probe closed in 2017 with out the regulator taking motion.)

Axos’ core enterprise is working as a direct-to-consumer financial institution on-line, with out pricey brick-and-mortar branches. However Axos can also be the quiet monetary companion of different, bigger-name companies. It offers prompt tax-return advance loans for H&R Block filers, in addition to banking companies to clients of Nationwide insurance coverage. Final 12 months, it purchased E-Commerce’s Advisor Companies enterprise.

However Axos additionally affords monetary companies to far-less respected companies — drawing scrutiny from Congress in addition to lawsuits accusing it of side-stepping state legal guidelines towards usury. (Extra on that later.)

Exorbitant Company Pay

Greg Garrabrants, now 50, has led Axos since 2007 and runs his monetary empire from La Jolla, in southern California, removed from the nation’s banking hub in New York. But regardless of its small measurement, Axos has paid its CEO, Greg Garrabrants, like a Wall Avenue titan.

In 2018, Garrarbrants earned a staggering $34.5 million — extra even than JP Morgan’s Jamie Dimon ($31 million) that very same 12 months, in line with the Los Angeles Instances. The huge payday reportedly arose from contract incentives resembling a hedge fund supervisor’s, incomes Garrabrants a share of the corporate’s returns after they rise above business averages.

Regardless of grumbling concerning the pay bundle, high buyers within the firm have sung his praises. “I’d price Greg Garrabrants a 9.9 on a scale of 1 to 10,” Don Hankey instructed the Los Angeles Instances. SEC paperwork present Hankey is the most important non-institutional investor in Axos; Hankey made his fortune with subprime auto loans, charging exorbitant curiosity to financially strapped clients who want a automobile.

Ties to Republican Politics

Garrabrants and Hankey are each prolific donors to Republican candidates and marketing campaign committees. Federal marketing campaign data present Garrabrants giving closely to the GOP in 2018, donating to a slew of Senate candidates together with Missouri’s Josh Hawley, Texas’ Ted Cruz, and Tennessee’s Marsha Blackburn. He additionally supported the marketing campaign of Devin Nunes, the previous senior congressman and Trump ally who now runs Trump’s social media firm.

In 2020, although, Garrabrants ramped up Republican donations. He gave giant donations to Trump’s reelection marketing campaign totaling virtually $10,000. He additionally donated closely to assist Republicans retain management of the Senate, funding David Perdue, the Georgia Republican who misplaced his Senate runoff election to Democrat Jon Ossoff. He additionally backed failed Arizona Republican contender Martha McSally and Michigan Republican John James.

Hankey, the Axos investor, has given greater than $100,000 to a slew of GOP causes, from quite a few state-level events to nationwide figures together with the 2016 presidential campaigns of Donald Trump, Sen. Marco Rubio (R-Fla.), and Jeb Bush, in addition to Mitt Romney’s 2012 presidential marketing campaign.

Ties to the Kushners

Trump Tower just isn’t the primary property linked to the previous president’s prolonged household that Axos has introduced into its portfolio. The financial institution has financed not less than three real-estate transactions with Jared Kushner’s household enterprise Kushner Corporations. In 2018, in line with Bloomberg, the Kushners acquired a $57 bridge mortgage for a dangerous New Jersey actual property improvement that was largely backed by Axos (then BOFI). The Kushner household handled Axos once more that very same 12 months, when the financial institution stepped in to take over the mortgage on a Brooklyn actual property deal that the Kushner Firm’s credit score arm had first financed to the tune of $30 million. Final 12 months, the Kushner Corporations reportedly obtained $80 million in financing from Axos and the funding group Fortress to interrupt floor on a improvement in South Florida.

SEC Investigation

This flurry of lending to the Kushner Firm started when Jared Kushner was senior adviser to his father-in-law, then-president Trump. On the time, Jared had ostensibly stepped again from administration of the household enterprise, however, controversially, retained an curiosity within the firm’s funds.

As for Axos, the financial institution had simply emerged from the shadow of an investigation by the Securities and Alternate Fee. The regulator started investigating Axos — then BOFI — in 2015, through the Obama administration. The probe closed with out motion in 2017, through the Trump years, in line with a timeline produced by Probes Reporter, an funding analysis agency that makes a speciality of bringing SEC actions to gentle. The precise contours of the investigation — and the reasoning behind the choice to shut it — haven’t been made public.

In 2017 Garrabrants reportedly blamed the federal scrutiny on “frivolous lawsuits,” “quick vendor web trolls,” and “pretend information hit items.”

Whistleblower Swimsuit

The SEC investigation, in truth, appeared to develop out of a criticism by an organization whistleblower, who additionally filed a federal lawsuit towards Axos, alleging illegal retaliation. (The lawsuit was filed in 2015 and is ongoing; Axos has countersued alleging privateness violations by the person they describe as a rogue worker. The case is heading to a jury trial.)

The whistleblower, Matt Erhart, was an inner auditor for the agency. And he found what he believed to be a raft of wrongdoing by the corporate and its CEO. In accordance with his federal criticism Erhart despatched two whistleblower tricks to the SEC from his work pc, one alleging the corporate made a false response to an SEC subpoena — denying the existence of data for a buyer the financial institution, in truth, had an in depth file on — and one other “concerning a suspicious mortgage buyer.”

The Erhart go well with additionally comprises different, much more explosive allegations. In doing an audit of senior govt accounts, Erhart claimed to have “found that CEO Gregory Garrabrants was depositing third-party checks… into a private account, together with almost $100,000 in checks made payable to 3rd events,” in line with the go well with. Erhart turned involved as to “whether or not or not the CEO was reporting the revenue to the IRS.”

Erhart additionally alleged that the most important shopper account on the financial institution was opened below the tax ID of Steven Garrabrants, the CEO’s brother. “The account had a stability of roughly $4 million, and the CEO was the signer on the account,” the criticism contends. “As Steven Garrabrants was a minor league baseball participant incomes poverty wages,” the go well with provides, “Plaintiff might discover no proof of how he had come legally into possession of the $4 million wired into the account. From the foregoing, Plaintiff was involved about whether or not CEO Garrabrants could possibly be concerned in tax evasion and/or cash laundering.”

Axos didn’t reply to questions concerning the lawsuit, however has beforehand waved off Erhart’s complaints as “with out benefit,” insisting that each one of Garrabrants’ deposits have been “approved and lawful.” The corporate’s countersuit describes Erhart as an “inner auditor gone rogue,” who vastly overstepped his job duties.

Along with this peculiar monetary exercise from the CEO, Erhart alleged the financial institution was doing enterprise with unsavory characters “in potential violation” of Financial institution Secrecy Act guidelines that require monetary establishments to do due diligence on their clients. The lawsuit states that in his audit exercise, Erhart was “capable of readily uncover info that lots of the debtors have been criminals, even infamous criminals… who put the financial institution at excessive threat for violating the Financial institution Secrecy Act’s Anti-Cash Laundering Guidelines.” The purchasers, he alleged “included very excessive degree international officers from main oil-producing nations and warfare zones.”

Class Motion

Axos has been hounded by lawsuits associated to Erharts’ allegations. Litigation initially filed by the Houston Municipal Staff Pension System morphed into a category motion go well with from buyers who believed they’d been misled by the financial institution. Of their lawsuit, they claimed that “representations portraying BofI” (now Axos) “as a cautious, prudent establishment masked a troubled entity that resorted to high-risk lending practices… to fraudulently increase its mortgage quantity and earnings.”

The allegations of “troubling conduct,” the go well with continued, “are knowledgeable by firsthand witness… a lot of whom describe senior administration (significantly Garrabrants…) as improperly pressuring or directing… audit personnel to change or bury their stories and findings in order to cover compliance points from regulators.”

The litigation has dragged on for years, however a settlement is now reportedly pending wherein Axos will pay $900,000 to settle the fees however not admit wrongdoing.

“Hire-a-Financial institution” Controversy

Axos’ dodgy enterprise practices have allegedly continued lately.

Many states have sought to crack down on payday lenders and different exploitative monetary companies by imposing rate of interest caps on loans, however a loophole in U.S. legislation has exempted federally chartered banks from these state limits.

In flip, that’s led to the rise of a “Hire-a-Financial institution” scheme, wherein unscrupulous lenders who search to cost exorbitant rates of interest companion with a federally chartered financial institution to fund their loans, and neatly keep away from state usury limits.

Axos has been an keen participant in such schemes — spurring each lawsuits and congressional ire. A 2020 lawsuit towards Axos and its companion World Enterprise Lenders accuses the businesses of conspiring to promote a mortgage at a staggering 138 % APR. The litigation accuses Axos and WBL of  “willful” and  “misleading acts and practices” that violated “New York’s Prison Usury legal guidelines.”

In a separate case that additionally impressed litigation a restaurant proprietor acquired saddled with a WBL/Axos mortgage with a 268 % APR that additionally reportedly featured a 30 % prepayment penalty.

Final 12 months, the Axos’ lending practices caught Sen. Elizabeth Warren’s consideration, for a mortgage the corporate had sponsored for WBL in Massachusetts at a 92 % rate of interest. In a listening to, Warren turned the screws to the pinnacle of the Workplace of the Comptroller of the Forex — Axos’ federal regulator — for not bringing enforcement actions towards the scandal-ridden financial institution:





Supply hyperlink