Houston sued Internet banking company BofI Holding Inc. for securities fraud on Thursday, prompting its shares to sink on allegations it relied on unlawful lending practices and off- balance-sheet entities to boost profits.
Nasdaq-traded shares of BofI fell more than 16 percent to $19.31. The stock had rallied more than 11-fold since its 2005 IPO.
The suit filed by the Houston Municipal Employees Pension System in U.S. District Court Southern District of California alleges that in one instance, the bank refinanced a loan to a borrower that participated in a gambling ring operated by a Salvadoran gang.
The suit also says the company failed to disclose its use of off-balance-sheet entities to purchase lottery receivables, lacked a robust compliance system and issued loans to foreign nationals with criminal or suspicious backgrounds.
BofI also failed to fully tell investors about government and regulatory subpoenas it had received and pending investigations by federal agencies, the suit claims. It seeks class-action status.
BofI and Houston’s pension fund were not immediately available for comment.
The case, filed in the U.S. District Court for Southern California, is 3:15-cv-02324-GPC-KSC.
(Reporting by Terry Wade; Editing by Dan Grebler)
