Donald Trump has succeeded in refinancing Trump Tower. That’s no small feat. The Trump Organization has mountains of debt and become a financial pariah. The company’s longtime accountant, Mazars, recently abandoned the Trumps — amid a New York state investigation into whether the company systematically manipulated the value of its assets. The accounting firm said it could no longer vouch for the accuracy of a decade’s worth of Trump Organization financial statements, insisting those documents “should no longer be relied upon.”
But an internet bank called Axos has stepped up with a financial lifeline for the former president’s company, working with the Trump Org. to refinance Trump Tower for a cool $100 million, in a transaction first reported by Forbes. Eric Trump released a statement defending the deal, insisting his family company was “very profitable” and had “no problem refinancing.” (Axos declined to comment for this story. The Trump Organization did not respond to a request for comment.)
Axos is an unusual lender, steeped in controversy. Its CEO and top investors have strong financial ties to the GOP. And Axos appears to be solidifying its position as the Trump-family banker, having previously stepped in as a financier for the family company of Trump’s son-in-law Jared Kushner.
The deal comes at a time when the Trump Org. faces legal peril from city and state regulators in New York. It offers a window into the Trump company’s financial standing, given that it had to turn to a politically connected online bank — and not a major Wall Street institution — to refinance the loan on the company’s most iconic property. And the deal creates the possibility for yet another glaring conflict of interest should Donald Trump run for president again in 2024.
Axos Bank? Never Heard of It
With headquarters in San Diego and Las Vegas, Axos is not a major financial player, with a market cap below $3 billion. (Bank of America, by contrast, is worth $327 billion.) The firm launched on July 4th, 1999, as one of the country’s first digital banks — known then as Bank of the Internet USA. It went public in 2005 with the stock ticker BOFI.
The company has grown aggressively — and left many aggrieved parties in its wake — as it has sought to disrupt traditional banking. The firm rebranded in 2018 as Axos (with the even bro-ier stock ticker AX) in the wake of an SEC investigation and a spate of lawsuits. (The probe closed in 2017 without the regulator taking action.)
Axos’ core business is operating as a direct-to-consumer bank online, without costly brick-and-mortar branches. But Axos is also the quiet financial partner of other, bigger-name firms. It provides instant tax-return advance loans for H&R Block filers, as well as banking services to customers of Nationwide insurance. Last year, it bought E-Trade’s Advisor Services business.
But Axos also offers financial services to far-less reputable businesses — drawing scrutiny from Congress as well as lawsuits accusing it of side-stepping state laws against usury. (More on that later.)
Exorbitant Corporate Pay
Greg Garrabrants, now 50, has led Axos since 2007 and runs his financial empire from La Jolla, in southern California, far from the country’s banking hub in New York. Yet despite its small size, Axos has paid its CEO, Greg Garrabrants, like a Wall Street titan.
In 2018, Garrarbrants earned a staggering $34.5 million — more even than JP Morgan’s Jamie Dimon ($31 million) that same year, according to the Los Angeles Times. The massive payday reportedly arose from contract incentives resembling a hedge fund manager’s, earning Garrabrants a percentage of the company’s returns when they rise above industry averages.
Despite grumbling about the pay package, top investors in the company have sung his praises. “I would rate Greg Garrabrants a 9.9 on a scale of one to 10,” Don Hankey told the Los Angeles Times. SEC documents show Hankey is the largest non-institutional investor in Axos; Hankey made his fortune with subprime auto loans, charging exorbitant interest to financially strapped customers who need a car.
Ties to Republican Politics
Garrabrants and Hankey are both prolific donors to Republican candidates and campaign committees. Federal campaign records show Garrabrants giving heavily to the GOP in 2018, donating to a slew of Senate candidates including Missouri’s Josh Hawley, Texas’ Ted Cruz, and Tennessee’s Marsha Blackburn. He also supported the campaign of Devin Nunes, the former senior congressman and Trump ally who now runs Trump’s social media company.
In 2020, though, Garrabrants ramped up Republican donations. He gave large donations to Trump’s reelection campaign totaling almost $10,000. He also donated heavily to help Republicans retain control of the Senate, funding David Perdue, the Georgia Republican who lost his Senate runoff election to Democrat Jon Ossoff. He also backed failed Arizona Republican contender Martha McSally and Michigan Republican John James.
Hankey, the Axos investor, has given more than $100,000 to a slew of GOP causes, from numerous state-level parties to national figures including the 2016 presidential campaigns of Donald Trump, Sen. Marco Rubio (R-Fla.), and Jeb Bush, as well as Mitt Romney’s 2012 presidential campaign.
Ties to the Kushners
Trump Tower is not the first property linked to the former president’s extended family that Axos has brought into its portfolio. The bank has financed at least three real-estate transactions with Jared Kushner’s family enterprise Kushner Companies. In 2018, according to Bloomberg, the Kushners got a $57 bridge loan for a risky New Jersey real estate development that was largely backed by Axos (then BOFI). The Kushner family dealt with Axos again that same year, when the bank stepped in to take over the mortgage on a Brooklyn real estate deal that the Kushner Company’s credit arm had first financed to the tune of $30 million. Last year, the Kushner Companies reportedly received $80 million in financing from Axos and the investment group Fortress to break ground on a development in South Florida.
SEC Investigation
This flurry of lending to the Kushner Company began when Jared Kushner was senior adviser to his father-in-law, then-president Trump. At the time, Jared had ostensibly stepped back from management of the family business, but, controversially, retained an interest in the company’s finances.
As for Axos, the bank had just emerged from the shadow of an investigation by the Securities and Exchange Commission. The regulator began investigating Axos — then BOFI — in 2015, during the Obama administration. The probe closed without action in 2017, during the Trump years, according to a timeline produced by Probes Reporter, an investment research firm that specializes in bringing SEC actions to light. The exact contours of the investigation — and the reasoning behind the decision to close it — have not been made public.
In 2017 Garrabrants reportedly blamed the federal scrutiny on “frivolous lawsuits,” “short seller internet trolls,” and “fake news hit pieces.”
Whistleblower Suit
The SEC investigation, in fact, appeared to grow out of a complaint by a company whistleblower, who also filed a federal lawsuit against Axos, alleging unlawful retaliation. (The lawsuit was filed in 2015 and is ongoing; Axos has countersued alleging privacy violations by the man they describe as a rogue employee. The case is heading to a jury trial.)
The whistleblower, Matt Erhart, was an internal auditor for the firm. And he discovered what he believed to be a raft of wrongdoing by the company and its CEO. According to his federal complaint Erhart sent two whistleblower tips to the SEC from his work computer, one alleging the company made a false response to an SEC subpoena — denying the existence of records for a customer the bank, in fact, had a detailed file on — and another “regarding a suspicious loan customer.”
The Erhart suit also contains other, far more explosive allegations. In doing an audit of senior executive accounts, Erhart claimed to have “discovered that CEO Gregory Garrabrants was depositing third-party checks… into a personal account, including nearly $100,000 in checks made payable to third parties,” according to the suit. Erhart became concerned as to “whether or not the CEO was reporting the income to the IRS.”
Erhart also alleged that the largest consumer account at the bank was opened under the tax ID of Steven Garrabrants, the CEO’s brother. “The account had a balance of approximately $4 million, and the CEO was the signer on the account,” the complaint contends. “As Steven Garrabrants was a minor league baseball player earning poverty wages,” the suit adds, “Plaintiff could find no evidence of how he had come legally into possession of the $4 million wired into the account. From the foregoing, Plaintiff was concerned about whether CEO Garrabrants could be involved in tax evasion and/or money laundering.”
Axos did not respond to questions about the lawsuit, but has previously waved off Erhart’s complaints as “without merit,” insisting that all of Garrabrants’ deposits were “authorized and lawful.” The company’s countersuit describes Erhart as an “internal auditor gone rogue,” who vastly overstepped his job duties.
In addition to this peculiar financial activity from the CEO, Erhart alleged the bank was doing business with unsavory characters “in potential violation” of Bank Secrecy Act rules that require financial institutions to do due diligence on their customers. The lawsuit states that in his audit activity, Erhart was “able to readily uncover information that many of the borrowers were criminals, even notorious criminals… who put the bank at high risk for violating the Bank Secrecy Act’s Anti-Money Laundering Rules.” The customers, he alleged “included very high level foreign officials from major oil-producing countries and war zones.”
Class Action
Axos has been hounded by lawsuits related to Erharts’ allegations. Litigation originally filed by the Houston Municipal Employees Pension System morphed into a class action suit from investors who believed they’d been misled by the bank. In their lawsuit, they claimed that “representations portraying BofI” (now Axos) “as a careful, prudent institution masked a troubled entity that resorted to high-risk lending practices… to fraudulently boost its loan volume and earnings.”
The allegations of “troubling conduct,” the suit continued, “are informed by firsthand witness… a number of whom describe senior management (particularly Garrabrants…) as improperly pressuring or directing… audit personnel to alter or bury their reports and findings so as to hide compliance issues from regulators.”
The litigation has dragged on for years, but a settlement is now reportedly pending in which Axos will pay $900,000 to settle the charges but not admit wrongdoing.
“Rent-a-Bank” Controversy
Axos’ dodgy business practices have allegedly continued in recent years.
Many states have sought to crack down on payday lenders and other exploitative financial firms by imposing interest rate caps on loans, but a loophole in U.S. law has exempted federally chartered banks from these state limits.
In turn, that’s led to the rise of a “Rent-a-Bank” scheme, in which unscrupulous lenders who seek to charge exorbitant interest rates partner with a federally chartered bank to fund their loans, and neatly avoid state usury limits.
Axos has been an eager participant in such schemes — spurring both lawsuits and congressional ire. A 2020 lawsuit against Axos and its partner World Business Lenders accuses the companies of conspiring to sell a mortgage at a staggering 138 percent APR. The litigation accuses Axos and WBL of “willful” and “deceptive acts and practices” that violated “New York’s Criminal Usury laws.”
In a separate case that also inspired litigation a restaurant owner got saddled with a WBL/Axos loan with a 268 percent APR that also reportedly featured a 30 percent prepayment penalty.
Last year, the Axos’ lending practices caught Sen. Elizabeth Warren’s attention, for a loan the company had sponsored for WBL in Massachusetts at a 92 percent interest rate. In a hearing, Warren turned the screws to the head of the Office of the Comptroller of the Currency — Axos’ federal regulator — for not bringing enforcement actions against the scandal-ridden bank:
.@SenWarren had a simple question for @BrianBrooksUS.
The OCC is supposed to be tough on big banks who enable predatory lenders with #RentABank. So how many enforcement actions did the OCC take against Axos Bank for charging a 92% interest rate in MA?
The answer: zero. pic.twitter.com/eazeVjTNkf
— Senate Banking and Housing Democrats (@SenateBanking) April 28, 2021
Source: RollingStone
