Arbor Realty Down 5.6% Amid Fraud Claims, Defends Integrity

Key Takeaway

• Arbor Realty Trust Inc. shares fell 5.6% after Viceroy Research accused it of fraudulent loan book valuations.
• Arbor Realty defends its financial integrity, promising detailed second-quarter filings in response to allegations.
• Despite Viceroy's ongoing short-selling and accusations, Arbor proactively reassures investors of its transparency and financial health.

Market Reaction to Fraud Accusations

Shares of Arbor Realty Trust Inc., a real estate investment trust specializing in loans for apartment buildings, experienced a notable decline, dropping as much as 5.6%. This market movement came in the wake of allegations made by Viceroy Research, which accused the company of engaging in fraudulent activities related to its loan book valuations. Viceroy's report claims that an off-balance-sheet entity, funded by Arbor Realty, has been purchasing properties that the lender had previously foreclosed on. According to Viceroy, these transactions were designed to prevent the necessity of writing down loans, thereby artificially inflating the value of Arbor's loan book.

Arbor Realty's Defense

In response to the allegations, Arbor Realty Trust Inc. issued a statement to Bloomberg News, asserting its confidence in the integrity of its financial statements, public comments, and disclosures. The company expressed its intention not to engage with short sellers but announced plans to provide a detailed account of the transaction mentioned by Viceroy in its upcoming second-quarter filings. This stance reflects Arbor Realty's commitment to transparency and its effort to clarify any misunderstandings or concerns raised by the report.

Viceroy's Position and Arbor's Anticipation

Viceroy Research, known for its short-selling strategies, revealed its position against Arbor Realty's shares as early as November, prior to releasing the report in question. Since then, Viceroy has published a series of reports elaborating on its accusations against the company. Anticipating further criticism from short sellers, Arbor Realty had proactively issued a statement after the market closed on Wednesday, before Viceroy's latest publication. In this preemptive communication, Arbor reiterated its confidence in the company's detailed filings, audited financial statements, and the remarks made during its earnings call. This move was aimed at minimizing market confusion and reassuring investors of the company's financial health and operational integrity.

Street Views

• Viceroy Research (Bearish on Arbor Realty Trust Inc.):

  "Arbor has fraudulently overstated the value of its loan book through undisclosed, off-balance sheet, related party transactions."

Management Quotes

• Arbor Realty in a statement to Bloomberg News:

  "It stands by its financial statements, public comments and disclosures, and will not respond to short sellers." "The company plans to disclose details about a transaction Viceroy referenced 'with all the correct facts and details' in its second-quarter filings."