Arbor Realty Trust is under investigation by the Department of Justice and the FBI following allegations of fraud made by short sellers. The federal prosecutors, in conjunction with the FBI's New York office, are scrutinizing the multifamily real estate investment trust’s lending practices and loan portfolio, as reported by Bloomberg. Arbor Realty Trust has stated it routinely cooperates with regulatory inquiries and maintains confidence in its conduct, anticipating a clear stance in its upcoming second-quarter earnings call as reported by Sasha Jones.
Leading the accusations is Viceroy Research, which previously accused Arbor of concealing losses through off-balance-sheet transactions involving assets from its foreclosures. Viceroy's latest report alleges that Moneil Capital, an Arbor borrower, has issued a capital call to restructure loans tied to a Houston apartment complex. Viceroy claims that Arbor's $52 million loan against the property is based on an inflated appraisal, calling the valuation “ludicrously overstated and appears fraudulent.”
Viceroy insists that Arbor's loan book needs significant impairment, suggesting that the equity is worthless and expressing no surprise over the investigation due to the alleged obviousness of the fraud. Despite these allegations, Arbor has been attempting to reassure its borrowers and investors, particularly in the multifamily sector.
Earlier in the year, a Cred iQ report revealed that a quarter of Arbor’s securitized debt was delinquent in January, although many of these payments were later made current. Arbor ended 2023 on a high note, surpassing analyst expectations with a net income of $91.7 million in the fourth quarter, compared to $88.2 million in the same period of 2022. Ivan Kaufman, Arbor’s President and CEO, highlighted 2023 as one of the company's best years despite challenging conditions. In the following quarter, Arbor modified approximately $1.9 billion in troubled loans, extending maturity dates and providing temporary rate relief.
This investigation could have significant implications for Arbor Realty Trust, and investors should closely monitor the developments and the company's response in the upcoming earnings call.
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