One of the banking industry's best-performing stocks is also one of the most shorted.

For five years straight, BofI Holding Inc. has been the best-performing thrift in S&P Global Market Intelligence's ranking, and the company's dominance holds up when compared to banks. From 2014 through 2016, BofI Holding was one of just four public banks and thrifts to report a return on average assets of at least 1.5% and a return on average tangible common equity of at least 15%, excluding companies that trade on pink sheets.

Despite the strong returns, the company is one of the banking industry's most shorted stocks. Short interest accounted for 37.39% of its shares outstanding as of Aug. 15. Unproven allegations of improper loan underwriting practices, violations of anti-money laundering rules and shady accounting practices have dogged BofI Holding since 2015. The No. 1 most shorted lender in mid-August was Banc of California Inc. with a short interest share of 39.42%. No other bank or thrift had a short interest share higher than 12.5%. Banc of California's chairman and CEO Steven Sugarman resigned in January amid allegations of impropriety and an open SEC investigation.

By contrast, BofI Holding executives said during the thrift's most recent earnings call that the SEC has confirmed there is no investigation into the company and "no enforcement action is contemplated." Equity analysts appear convinced, and the stock reacted positively to the statement: Since the July 27 earnings call, the company's stock is up 6.5% compared to a 4.2% drop in the SNL U.S. Thrift index. But the company's skeptics were not swayed by the earnings-call proclamation.

"BOFI executives have elevated misleading investors to an art form," wrote John Gavin, CEO of Probes Reporter, a subscription research service focused on SEC investigations, in an email. Gavin said BofI could only have received communication from the SEC if there was an investigation that it had closed, so CEO Gregory Garrabrants' comments essentially confirm an inquiry that the company had previously denied, according to Gavin.

Johnny Lai, BofI's vice president of investor relations, declined to comment.

The short case

The short case against BofI Holding took off in October 2015 when Charles Matthew Erhart, a former internal auditor for the company, filed a lawsuit alleging that BofI violated whistleblower protection laws after Erhart raised concerns of various improprieties, including some that implicated the CEO personally. BofI Holding countersued Erhart, alleging that he breached a confidentiality agreement by sharing company data with the press. The lawsuits are ongoing.

Since the 2015 lawsuit, there have been numerous reports detailing new charges or expanding on Erhart's claims, mostly by anonymous bloggers at SeekingAlpha. The posts so bothered BofI Holding that the company unsuccessfully sought to "unmask" one of the authors who goes by the alias "Aurelius." An October 2016 post questioning Banc of California's ethics preceded the CEO's resignation by more than three months. "Aurelius" did not respond to a request for comment.

More recently, short sellers celebrated a series of articles published in late June by the Southern Investigative Reporting Foundation, or SIRF. The central finding in the investigative series focused on a deposition given by an executive of Quick Bridge Funding, a nonbank that specializes in high-interest loans to small businesses. BofI Holding originates the loan and then assigns the loan to Quick Bridge. This sort of "issuing bank" structure is widely used in the burgeoning digital lending industry but has faced some legal challenges.

Some SeekingAlpha posts back in 2015 had focused on BofI Holding's relationship with Quick Bridge, so the new finding in SIRF's reporting was testimony from Quick Bridge's CEO that the loans it receives from BofI Holding could not be sold. As such, SIRF reported, BofI Holding should account for the loans on its balance sheet, something that could alter the thrift's risk profile.

However, the accounting procedures are not as cut-and-dried as SIRF suggested. Several accounting experts contacted by S&P Global Market Intelligence declined to comment on the record, but two experts said on background that the facts presented by SIRF were insufficient to reach a definitive conclusion considering that the accounting standards, known as Generally Accepted Accounting Principles, can be vague or inconsistent. Of particular note, Quick Bridge's sale prohibition would not necessarily force BofI Holding to account for the asset if Quick Bridge could pledge the loan as collateral.

Fundamental value

For equity analysts, there is little concern about the short sellers' allegations considering that the company has closed deals that require regulatory approval and has passed multiple exams conducted by both regulators and auditors. Analysts' central complaint has been BofI Holding's inability to ignore the shorts.

"At certain conference calls, the company has been very vocal against shorts, which I think can be a little counterproductive. The thought that, 'Where there's smoke, there's fire,'" said Scott Valentin, an analyst with Compass Point Research & Trading. Citing the release of yet another "clean" regulatory filing, Valentin reiterated his "buy" recommendation in an Aug. 24 note that called the company "one of the more attractive risk/reward opportunities in the regional bank space."

Analysts across the board recommend BofI Holding's stock. Among the 207 public, operating banks and thrifts with at least three analyst opinions in S&P Global Market Intelligence's CapIQ database, BofI Holding is the only company with a buy opinion from all its analysts.

While battling the shorts, BofI Holding posted a 17.8% return on tangible common equity in its 2017 fiscal year ended June 30, 2017. Compared to other high-performing financial companies, BofI Holding is cheap. Its price-to-tangible book ratio sits at roughly 210%, above the industry average of 170% but well below the roughly 280% ratio seen among other high-performing financial institutions.

"It's trading at a sizable discount to similarly profitable institutions and at some point I'd expect that to normalize. Whether it gets back to peer-like multiples is another question," said Gary Tenner, an analyst with D.A. Davidson.

And so the story of BofI Holding has become a waiting game, with short sellers hoping for vindication via a major regulatory action and long investors wondering when the shorts will move along.