Q: Hi, I’m still trying to wrap my head around the big news today from GSY and what may have led to this unfortunate event over the last few years.
How was this ticking bomb hidden in the company and why did analysts and auditors not see this or raise questions further? Or were they ignored? Was management hiding certain facts or was this standard practice and policies of this industry which was allowed? Other than the short seller report late last year, did analysts not dig deep enough into their lending and financials? Who do you think is responsible for this disaster and were known issues building up and just kicked down the road until now? I pulled up the short report and the news from today and asked Gemini to compare the two, here is the summary I got. Thanks for any further comments!
Based on the bombshell news release from today (March 10, 2026), it appears that the short sellers were largely correct in their fundamental assessment of the company’s accounting and credit health.
While goeasy (GSY) spent months "categorically denying" the allegations of a short-seller "attack," today's update reveals that many of the specific "smoking guns" highlighted by Jehoshaphat Research have indeed materialized as significant financial problems.
Here is a breakdown of how the today's news validates the short sellers' original thesis:
1. The "Hidden Losses" are No Longer Hidden
Short Seller Claim: goeasy was masking $300 million in delayed credit losses.
Today's Reality: goeasy announced a massive $178 million "incremental charge-off" for Q4 2025 specifically related to the LendCare business, plus a $55 million write-down of interest and fees. This essentially admits that $233 million in value they were carrying on the books was uncollectible.
2. Validation of the "Accounting Wizardry" Allegation
Short Seller Claim: The company was using "accounting wizardry" and changing definitions to hide delinquencies.
Today's Reality: The company admitted to a "correction of a historical reporting practice" at LendCare. They revealed that customer payments were being recorded as "received" when they were actually still "in the process of being settled" (and some were never collected). This artificially lowered reported delinquency rates in 2024 and 2025—exactly what the short sellers alleged.
3. The Shift in Net Charge-Off (NCO) Rates
Short Seller Claim: Reported NCO rates were artificially low and the "true" rate was closer to 15%.
Today's Reality: goeasy has raised its expected 2025 NCO rate to 12.9% and warned that it will jump to the "mid-teens" in 2026. This is a massive departure from their previous guidance and aligns almost perfectly with the short sellers' projections.
4. Admission of Governance & Risk Failures
Short Seller Claim: The rapid growth in auto/powersports loans was a "time bomb" due to poor risk management.
Today's Reality: The new CFO, Felix Wu, stated that LendCare’s growth required "more robust operational infrastructure" and "enhanced credit risk management." The company is now drastically reducing originations in those categories—a move that effectively acknowledges the short seller's warning that this growth was low-quality and dangerous.
5. Drastic "Emergency" Measures
The severity of the situation is highlighted by the "6-Point Action Plan" goeasy announced today, which reads like a crisis management manual:
Dividend Suspension: Effective immediately, the dividend is cancelled.
Guidance Withdrawal: They have withdrawn all previous three-year financial forecasts.
Covenant Breeches: The company admits it will likely breech financial covenants with its lenders and is currently operating under an "accommodation agreement" (essentially a temporary truce with banks).
Conclusion
While the short sellers may not have been right about every single technicality, their core thesis—that goeasy was overstating its asset quality, understating its losses, and using aggressive accounting to mask a deteriorating subprime portfolio—has been vindicated by today’s news.
For investors, the transition from "Buy" ratings and denials to a total suspension of the dividend and a $233 million write-down marks a total collapse of management's previous narrative.
How was this ticking bomb hidden in the company and why did analysts and auditors not see this or raise questions further? Or were they ignored? Was management hiding certain facts or was this standard practice and policies of this industry which was allowed? Other than the short seller report late last year, did analysts not dig deep enough into their lending and financials? Who do you think is responsible for this disaster and were known issues building up and just kicked down the road until now? I pulled up the short report and the news from today and asked Gemini to compare the two, here is the summary I got. Thanks for any further comments!
Based on the bombshell news release from today (March 10, 2026), it appears that the short sellers were largely correct in their fundamental assessment of the company’s accounting and credit health.
While goeasy (GSY) spent months "categorically denying" the allegations of a short-seller "attack," today's update reveals that many of the specific "smoking guns" highlighted by Jehoshaphat Research have indeed materialized as significant financial problems.
Here is a breakdown of how the today's news validates the short sellers' original thesis:
1. The "Hidden Losses" are No Longer Hidden
Short Seller Claim: goeasy was masking $300 million in delayed credit losses.
Today's Reality: goeasy announced a massive $178 million "incremental charge-off" for Q4 2025 specifically related to the LendCare business, plus a $55 million write-down of interest and fees. This essentially admits that $233 million in value they were carrying on the books was uncollectible.
2. Validation of the "Accounting Wizardry" Allegation
Short Seller Claim: The company was using "accounting wizardry" and changing definitions to hide delinquencies.
Today's Reality: The company admitted to a "correction of a historical reporting practice" at LendCare. They revealed that customer payments were being recorded as "received" when they were actually still "in the process of being settled" (and some were never collected). This artificially lowered reported delinquency rates in 2024 and 2025—exactly what the short sellers alleged.
3. The Shift in Net Charge-Off (NCO) Rates
Short Seller Claim: Reported NCO rates were artificially low and the "true" rate was closer to 15%.
Today's Reality: goeasy has raised its expected 2025 NCO rate to 12.9% and warned that it will jump to the "mid-teens" in 2026. This is a massive departure from their previous guidance and aligns almost perfectly with the short sellers' projections.
4. Admission of Governance & Risk Failures
Short Seller Claim: The rapid growth in auto/powersports loans was a "time bomb" due to poor risk management.
Today's Reality: The new CFO, Felix Wu, stated that LendCare’s growth required "more robust operational infrastructure" and "enhanced credit risk management." The company is now drastically reducing originations in those categories—a move that effectively acknowledges the short seller's warning that this growth was low-quality and dangerous.
5. Drastic "Emergency" Measures
The severity of the situation is highlighted by the "6-Point Action Plan" goeasy announced today, which reads like a crisis management manual:
Dividend Suspension: Effective immediately, the dividend is cancelled.
Guidance Withdrawal: They have withdrawn all previous three-year financial forecasts.
Covenant Breeches: The company admits it will likely breech financial covenants with its lenders and is currently operating under an "accommodation agreement" (essentially a temporary truce with banks).
Conclusion
While the short sellers may not have been right about every single technicality, their core thesis—that goeasy was overstating its asset quality, understating its losses, and using aggressive accounting to mask a deteriorating subprime portfolio—has been vindicated by today’s news.
For investors, the transition from "Buy" ratings and denials to a total suspension of the dividend and a $233 million write-down marks a total collapse of management's previous narrative.
5i Research Answer:
There may be other factors, such as a complete shift in customers' ability to pay (which is...