Auditor who was fired from Axos Bank, Trump's new lender, wins suit against bank | GAMEJES

Auditor who was fired from Axos Bank, Trump’s new lender, wins suit against bank

A former internal auditor who was fired after he raised concerns about practices at Axos Bank, the Trump Organization’s new lender, won his wrongful termination case against the bank last week. The federal jury hearing the case in the Southern District of California awarded Charles Matthew Erhart, the former auditor, $1 million in damages for emotional distress or harm to his reputation and $500,000 for defamatory statements about him.

The jury could not agree on punitive damages and a new trial on that element is scheduled for this summer.

Erhart began working at Axos, then known as Bank of Internet, in September 2013, documents show. He filed his suit in 2015, contending that Axos terminated him “in violation of public policy.”

Matt Erhart was fired after he raised concerns about practices at Axos Bank.
Matt Erhart was fired after he raised concerns about practices at Axos Bank. Courtesy Matt Erhart

Since then, the case has inched through the courts, with the bank cranking out thousands of pages of documents Erhart had to respond to, Carol Gillam, his lead lawyer, told NBC News.

In an interview, Erhart said, “They went to every measure possible to stop us from coming forward with the truth. I’ve seen it through and it made me a stronger, better person.”

A spokesman for Axos, who declined to be identified, said in a statement, “Although we respectfully disagree with the verdict, we take the jury’s decision very seriously and continue to examine our policies and practices to see if there is room for improvement.”

The bank said it planned to appeal all counts of the verdict and is “confident the verdict will be overturned.”

In his suit, Erhart, now 35, alleged he was terminated after he spoke out about an array of questionable activities he said he had seen at the bank. 

The jury found that Erhart “reasonably believed” the bank’s conduct included: high deposit risk concentration; giving a misleading response to a subpoena from the Securities and Exchange Commission; failing to disclose subpoenas to the Office of the Comptroller of the Currency, the bank’s regulator, in response to its request; and providing risky loans to criminals or politically exposed people, those who, because of their public positions or relationships, “may present a risk higher than other customers by having access to funds that may be the proceeds of corruption or other illicit activity,” according to bank regulators.

The Axos spokesman said in a statement that the bank denied all of Erhart’s allegations of dubious practices. “To be clear, the jury was not required to find, and did not find, Mr. Erhart’s underlying allegations to be correct,” the statement said. “Independent auditors and government regulators — all with full knowledge of all such allegations — have consistently issued clean audit opinions, passed examinations and granted further regulatory approvals that require evaluation of Axos’s regulatory compliance and compliance infrastructure among other aspects of Axos’s operations.”

What is Axos? The bank funding Trump’s loans

April 7, 202202:05

In another recent legal development, Axos agreed last month to pay $14.1 million to settle a securities fraud class action filed against the bank in 2015. That case was brought by the Houston Municipal Employees Pension System and was largely based on Erhart’s allegations.

The Axos spokesman said the bank reached the settlement “because the parties were able to negotiate terms within available insurance coverage and without attribution of wrongdoing to Axos, its management or its directors.”

Axos was founded in 2000 as Bank of Internet USA, or BofI, a digital entity with no physical branches; it changed its name to Axos in 2018. Its shares trade on the New York Stock Exchange and are down 34 percent this year compared with a broad index of bank stocks that has lost 16 percent.

In mid-February, Axos refinanced a $100 million Trump Tower mortgage due in September, a New York City Finance Department document shows. The new loan was made just days after the Trump Organization’s auditor resigned, saying that 10 years of the company’s financial statements could not be relied upon.

With $15.5 billion in assets at the end of 2021, Axos is a relatively small, federally chartered savings institution. It is helmed by Gregory Garrabrants, a lawyer, former Goldman Sachs banker and McKinsey & Co. consultant. Before joining Axos in October 2007, Garrabrants was an executive at Indymac, a huge California savings & loan that collapsed in July 2008 under a heap of toxic mortgages, according to bank regulators. Indymac was one of the nation’s biggest bank failures, costing over $10 billion, a government investigator estimated.

As NBC News previously reported, Axos has acted as middleman on loans to small businesses that carried cripplingly high double- and triple-digit effective annual interest rates, loan documents show. Previously, the Axos spokesman said this operation was “a bank sponsorship program, operated so as to be fully compliant with legal and regulatory requirements, through which it entered into agreements with several third-party service providers.” All but one of these programs have been wound down, the spokesman added. 

Axos faces another wrongful termination suit filed in March in California federal court by Jennifer Brear Brinker. She was hired in 2018 to review the bank’s loan portfolios for its “Governance, Risk Management and Compliance Department” and in her suit accused the bank of intentionally understaffing its compliance department “in an effort to conceal its failure to comply with federal banking regulations.”

Brinker contended that she was terminated in January 2021 while completing a report highlighting deficiencies at Axos including “significant issues in the bank’s anti-money laundering practices.”

The bank’s spokesman said it disputes Brinker’s allegations “and her perception of the underlying factual circumstances.” It provided a letter from the Department of Labor stating that the wrongful termination allegations Brinker filed with the agency “did not make a prima facie showing.” Axos said it intends to defend against the lawsuit vigorously.

Robert King, a lawyer at King & Siegel who represents Ms. Brinker, said, “We’re pleased to see the Axos verdict and look forward to proving our client’s claims in court.”

Before he was recruited to join Axos, Erhart had been an examiner at the Financial Industry Regulatory Authority. There, he’d led an examination that identified a broker who allegedly stole $4.2 million from his customers, his lawyer said. Erhart began identifying problems soon after he was hired at Axos, according to his complaint.

Over the years, Axos battled the Erhart case aggressively, suing the former auditor’s mother, who lives in Kansas, and his girlfriend. Erhart had used his girlfriend’s computer to send documents to bank regulators related to his case and sent a file of materials to his mother for safekeeping in case anything happened to him. Both of those cases were settled.

During the almost monthlong trial, “all the bank’s efforts to demonize Matt just blew up big time,” said Gillam, Erhart’s lawyer. “We had a really attentive jury and very patient jury. They really bonded with Matt and waited until after it was all over to tell him how admiring they were of him.”

A former internal auditor who was fired after he raised concerns about practices at Axos Bank, the Trump Organization’s new lender, won his wrongful termination case against the bank last week. The federal jury hearing the case in the Southern District of California awarded Charles Matthew Erhart, the former auditor, $1 million in damages for emotional distress or harm to his reputation and $500,000 for defamatory statements about him.

The jury could not agree on punitive damages and a new trial on that element is scheduled for this summer.

Erhart began working at Axos, then known as Bank of Internet, in September 2013, documents show. He filed his suit in 2015, contending that Axos terminated him “in violation of public policy.”

Matt Erhart was fired after he raised concerns about practices at Axos Bank.
Matt Erhart was fired after he raised concerns about practices at Axos Bank. Courtesy Matt Erhart

Since then, the case has inched through the courts, with the bank cranking out thousands of pages of documents Erhart had to respond to, Carol Gillam, his lead lawyer, told NBC News.

In an interview, Erhart said, “They went to every measure possible to stop us from coming forward with the truth. I’ve seen it through and it made me a stronger, better person.”

A spokesman for Axos, who declined to be identified, said in a statement, “Although we respectfully disagree with the verdict, we take the jury’s decision very seriously and continue to examine our policies and practices to see if there is room for improvement.”

The bank said it planned to appeal all counts of the verdict and is “confident the verdict will be overturned.”

In his suit, Erhart, now 35, alleged he was terminated after he spoke out about an array of questionable activities he said he had seen at the bank. 

The jury found that Erhart “reasonably believed” the bank’s conduct included: high deposit risk concentration; giving a misleading response to a subpoena from the Securities and Exchange Commission; failing to disclose subpoenas to the Office of the Comptroller of the Currency, the bank’s regulator, in response to its request; and providing risky loans to criminals or politically exposed people, those who, because of their public positions or relationships, “may present a risk higher than other customers by having access to funds that may be the proceeds of corruption or other illicit activity,” according to bank regulators.

The Axos spokesman said in a statement that the bank denied all of Erhart’s allegations of dubious practices. “To be clear, the jury was not required to find, and did not find, Mr. Erhart’s underlying allegations to be correct,” the statement said. “Independent auditors and government regulators — all with full knowledge of all such allegations — have consistently issued clean audit opinions, passed examinations and granted further regulatory approvals that require evaluation of Axos’s regulatory compliance and compliance infrastructure among other aspects of Axos’s operations.”

What is Axos? The bank funding Trump’s loans

April 7, 202202:05

In another recent legal development, Axos agreed last month to pay $14.1 million to settle a securities fraud class action filed against the bank in 2015. That case was brought by the Houston Municipal Employees Pension System and was largely based on Erhart’s allegations.

The Axos spokesman said the bank reached the settlement “because the parties were able to negotiate terms within available insurance coverage and without attribution of wrongdoing to Axos, its management or its directors.”

Axos was founded in 2000 as Bank of Internet USA, or BofI, a digital entity with no physical branches; it changed its name to Axos in 2018. Its shares trade on the New York Stock Exchange and are down 34 percent this year compared with a broad index of bank stocks that has lost 16 percent.

In mid-February, Axos refinanced a $100 million Trump Tower mortgage due in September, a New York City Finance Department document shows. The new loan was made just days after the Trump Organization’s auditor resigned, saying that 10 years of the company’s financial statements could not be relied upon.

With $15.5 billion in assets at the end of 2021, Axos is a relatively small, federally chartered savings institution. It is helmed by Gregory Garrabrants, a lawyer, former Goldman Sachs banker and McKinsey & Co. consultant. Before joining Axos in October 2007, Garrabrants was an executive at Indymac, a huge California savings & loan that collapsed in July 2008 under a heap of toxic mortgages, according to bank regulators. Indymac was one of the nation’s biggest bank failures, costing over $10 billion, a government investigator estimated.

As NBC News previously reported, Axos has acted as middleman on loans to small businesses that carried cripplingly high double- and triple-digit effective annual interest rates, loan documents show. Previously, the Axos spokesman said this operation was “a bank sponsorship program, operated so as to be fully compliant with legal and regulatory requirements, through which it entered into agreements with several third-party service providers.” All but one of these programs have been wound down, the spokesman added. 

Axos faces another wrongful termination suit filed in March in California federal court by Jennifer Brear Brinker. She was hired in 2018 to review the bank’s loan portfolios for its “Governance, Risk Management and Compliance Department” and in her suit accused the bank of intentionally understaffing its compliance department “in an effort to conceal its failure to comply with federal banking regulations.”

Brinker contended that she was terminated in January 2021 while completing a report highlighting deficiencies at Axos including “significant issues in the bank’s anti-money laundering practices.”

The bank’s spokesman said it disputes Brinker’s allegations “and her perception of the underlying factual circumstances.” It provided a letter from the Department of Labor stating that the wrongful termination allegations Brinker filed with the agency “did not make a prima facie showing.” Axos said it intends to defend against the lawsuit vigorously.

Robert King, a lawyer at King & Siegel who represents Ms. Brinker, said, “We’re pleased to see the Axos verdict and look forward to proving our client’s claims in court.”

Before he was recruited to join Axos, Erhart had been an examiner at the Financial Industry Regulatory Authority. There, he’d led an examination that identified a broker who allegedly stole $4.2 million from his customers, his lawyer said. Erhart began identifying problems soon after he was hired at Axos, according to his complaint.

Over the years, Axos battled the Erhart case aggressively, suing the former auditor’s mother, who lives in Kansas, and his girlfriend. Erhart had used his girlfriend’s computer to send documents to bank regulators related to his case and sent a file of materials to his mother for safekeeping in case anything happened to him. Both of those cases were settled.

During the almost monthlong trial, “all the bank’s efforts to demonize Matt just blew up big time,” said Gillam, Erhart’s lawyer. “We had a really attentive jury and very patient jury. They really bonded with Matt and waited until after it was all over to tell him how admiring they were of him.”

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