A Major Short Seller Just Attacked SoFi. Here's Why the CEO Is Buying Hand Over Fist

The world for SoFi Technologies (NASDAQ: SOFI) just became messier. A famous short seller -- Muddy Waters Research -- released a report last week alleging that the fast-growing lender is engaging in misleading accounting to boost its reported profitability to shareholders.

Now, SoFi's stock has fallen below $20 and is down almost 50% from all-time highs set earlier in 2025. The company claims that this short report has no merit, and the longtime CEO, Anthony Noto, recently bought shares in the open market. Here's what the insider buy could mean, and whether now is a great time to buy the dip on SoFi stock.

Short seller claims and a company defense strategy

SoFi operates as a digital disruptor for the banking world. With the tag line "Get Your Money Right," it wants to become a mobile app that lets customers save money and take out loans. It offers dozens of products, including high-yield savings accounts, credit cards, and personal loans. With high interest rates compared to the competition, SoFi has been able to rapidly attract deposits from customers. It added $4.6 billion in deposits last quarter alone, bringing its total to just under $38 billion.

What Muddy Waters is concerned about is not SoFi's deposit acquisition, but the personal lending business. While the report is lengthy, three main allegations could be detrimental to the business if proven true.

First, Muddy Waters alleges that SoFi is retaining risk on loans it sells for fee income, which could require restated financials and an investigation by the SEC. Second, the short research firm claims that SoFi's loss rates -- meaning how many loans are delinquent -- are closer to 6.1%, compared to the 2.89% rate the company reports for personal loans. Third, Muddy Waters believes that SoFi is lending money to third parties, who then return that borrowed money to buy SoFi loans, a practice known as circular financing.

If one or more of these allegations prove true, SoFi's business could be in serious trouble.

Image source: SoFi Technologies.

Time to buy the dip?

SoFi management immediately issued a statement after the report was released, calling it factually inaccurate and intended to mislead investors, and said it would take legal action against the short seller. Noto even bought some stock in the aftermath of the release. This was done as a vote of confidence in the business, with Noto trying to align his own financial interests with those of the shareholders. His personal stake is valued at around $200 million, depending on the stock's price.

So, who is correct: SoFi or Muddy Waters? Well, unfortunately, right now, retail investors do not know for certain. It could be a mix of both. If you believe in SoFi management's integrity, now could be a great time to buy the dip. However, if even some of what Muddy Waters alleges proves true, the stock is going to fall a lot further from here.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.