Online lender SoFi’s sex scandal, which resulted in the company’s chief executive stepping down, is dashing its chances of becoming a bank.
According to a news report in the Financial Times that cited a close adviser and former chairman of the Securities and Exchange Commission, last week’s scandal-prompted departure of co-founder, chairman and chief executive Mike Cagney has killed its bank application. “This departure of Mike makes that a very questionable attainment,” said Arthur Levitt Jr., a former chairman of the SEC who began advising the company two years ago. Levitt also noted that the FDIC has turned down this type of application multiple times in the past. “So, for a company as aggressive as SoFi, I think the chances of that happening were slim. Now they become almost impossible.”
SoFi was hit with two lawsuits in which the plaintiffs alleged sexual harassment and unfair work practices. That prompted Cagney to tell employees in August that he would be stepping down as CEO by the end of 2017. But with more reports surfacing that Cagney engaged in even more inappropriate conduct, SoFi announced late last week that the CEO would leave immediately. Cagney was replaced by Tom Hutton, a board member, on an interim basis, reported Reuters.
Another person familiar with the process told Reuters that the departure of the CEO makes it more difficult for the company to break into mainstream banking. “The FDIC won’t act in a vacuum,” the source told Reuters. “For most regulators, management is the single most important issue.”
SoFi had been seeking a special charter known as an industrial loan company, which enables it to engage in most banking services, such as making loans and insuring deposits. That charter excludes it from supervision by the Federal Reserve and subjects it to the Bank Holding Company Act, noted the report.