Feds probe Bank of Internet for possible money laundering
Federal agents are conducting a probe into possible money laundering at online lender Bank of Internet, The Post has learned.
The Justice Department, which is leading the investigation, has interviewed at least one former employee of the San Diego-based bank, sources said.
Bank of Internet Chief Executive Gregory Garrabrants, head of the bank since 2007, is also a focus of the probe, sources said. Neither the 18-year-old bank nor Garrabrants has been accused of any criminal activity.
Part of the probe is centered on regulatory filings made by Bank of Internet, also known as BofI, to the Office of the Comptroller of the Currency, according to four people familiar with the matter.
In late 2015, a Houston pension fund filed a civil suit against BofI and its CEO claiming the bank “misrepresented the risks of investing” with it.
BofI allegedly filed incorrect call reports to hide loans made to foreign nationals without requiring them to provide a tax identification number — a form of ID that’s used to root out money laundering, the suit alleges.
BofI, pubicly traded with a market cap of $1.7 billion, is primarily an online-focused bank. Its deposits more than tripled to $6.6 billion since 2013, according to company filings.
BofI’s accounting and money-laundering controls have been the subject of lawsuits for at least two years — since a former auditor, Charles Erhart, accused Garrabrants in a separate civil suit of flouting disclosure rules.
In one situation, the CEO deposited third-party checks into his personal account, the suit claims. In another, Garrabrants was the signer on an account for Charles Erhart, Charles’ brother and a minor league baseball player earning poverty wages, the suit claimed.
The account had a balance of $4 million and was the largest consumer account at BofI.
The bank also didn’t disclose to the OCC that it had made as many as 200 loans to people without the ID numbers, a potential violation of the USA Patriot Act and the Bank Secrecy Act, according to the suit.
Those people “included very high level foreign officials from major oil-producing countries and war zones,” according to Erhart’s suit.
Some of the loans in question allegedly went to purchase luxury real estate in California and Florida.
The civil lawsuits are ongoing, and BofI has moved to dismiss them. Garrabrants, via a BofI executive, denied Erhart’s claims.
“Greg has answered these questions over and over again, and I don’t know why you’re all of a sudden coming up with all of this silliness, and in pursuit of what?” Eshel Bar-Adon, BofI’s chief legal officer, told The Post.
Bar-Adon refused to answer questions about any possible criminal probe, but said the company was “completely unaware” of any indictments in the works.
“Due to false allegations made in short seller hit pieces and pending litigation, agencies routinely ask questions to assure themselves that such allegations are without basis,” Bar-Adon added in a written statement. “However, there are no material investigations that would require public disclosure and BofI remains in good regulatory standing.”
Spokespersons for the Justice Department and OCC, which is also investigating, declined to comment. The Securities and Exchange Commission and the Treasury Department, also in the probe, didn’t answer an e-mail seeking comment.
It’s not clear whether any of the probes will result in indictments.