At SoFi, The Problems Go Way Beyond Its Toxic Workplace

CEO Mike Cagney’s replacement will have to clean up the culture and the business before the company can IPO.

At SoFi, The Problems Go Way Beyond Its Toxic Workplace
[Photo: ROB LEVER/AFP/Getty Images]

SoFi cofounder and CEO Mike Cagney does not try to hide from the fact that his first stint as a chief executive was a bust. “It was a humbling experience,” he says of the five years he spent at wealth management startup Finaplex. After stumbling in the role, he hired a manager lacking in domain expertise as his replacement, purposefully setting his successor up for failure. But the Shakespearean ploy failed: After a brief return to his place at the top, the board fired him. Today, Cagney looks on the episode as a “learning experience.”


It became clear this week that Cagney has yet more lessons to learn. He abruptly announced his resignation on Monday as allegations of misconduct engulfed SoFi, a lending startup worth over $4 billion. Employees say they witnessed sexual harassment, verbal harassment, sexual relationships between managers and lower-level staff, and an overall culture of fear and disrespect. Moreover, the bad behavior started at the top with Cagney himself, according to interviews with former employees. One former underwriter, who spoke with the New York Times, compared the office environment to that of a “frat house.”

Now the search is on for an experienced leader who can rewire SoFi’s culture and prepare the company to go public. They will need to clean up a mess that includes multiple lawsuits and a sprawling operation that spans lending, wealth management, life insurance, and a digital bank that the company acquired for nearly $100 million in February. Analysts say the transition will set back SoFi’s IPO plans by at least 12 months, if not longer.

Uber, which recently hired former Expedia CEO Dara Khosrowshahi to take the reins from cofounder Travis Kalanick, is in the midst of a similar transition, after Kalanick’s boundary-pushing behavior tarnished the ride-hailing company’s reputation and imperiled its ability to raise capital. At SoFi, restoring the company’s brand will be of even greater urgency. Uber operates a transactional business, serving as the intermediary between riders and drivers. SoFi, in contrast, has differentiated itself from other online lenders by building strong relationships with consumers and positioning itself to cross-sell—offering mortgages to customers who have refinanced their student loans, for example. Becoming a member of the SoFi “club” brings privileges such as access to career services and social events.

“They’ve made this brand that they’re different, that they care about community,” says Peter Renton, founder of Lend Academy. “Those ties can be broken relatively easily if people feel betrayed. They’ve got some work to do when it comes to PR and trust, particularly for the female members of that community.”

At its launch in 2011, SoFi focused on refinancing student loans. Cagney soon added personal loans and mortgages to the mix, the growth fueled by his fundraising prowess and excellent timing (investors, hungry for yield, were eager to buy the debt of SoFi’s well-educated young professionals). Before long, the company was managing a multi-billion dollar loan book. Competitors like CommonBond and Earnest entered the fray, helping put a millennial-oriented version of fintech on the map.

Cagney did not stop there, adding new projects at a rate that both inspired and frustrated his employees. He mused about a dating app for SoFi’s 350,000 members, but never built one. He announced SoFi checking accounts and credit cards, but has not brought them to market. And he raised $1 billion in Series E funding from Softbank, with the intention of expanding overseas—first to Australia and Canada, and then to Asia in 2018—but has fallen behind schedule on those plans. “We believe we can build super sticky engagement,” he told Fast Company in May, by serving every financial need in a SoFi member’s life. But the company’s ability to execute on that vision remains unclear.


Behind the scenes, SoFi looked more like an old-school Wall Street trading floor than a forward-thinking technology company. Managers threw phones and kicked file cabinets, former employees say, while unleashing tirades of abuse. Teams often relied on a patchwork of Excel documents to manage operations and workflows, rather than scaleable back-end technology (Cagney’s wife, June Ou, serves as CTO).

Lack of discipline in manager conduct spilled over into how the business operated. SoFi’s 2016 Super Bowl TV spot, for example, blew the company’s marketing budget.

SoFi leaders sometimes lacked patience, as well: In the company’s first round of mortgages, some homes lacked appraisals.

Those issues may come back to haunt the company as it waits for a regulator response to its application for an industrial loan charter, which is a type of banking license. (Jack Dorsey’s Square, which lends to small businesses, also aspires to become an ILC bank.) Even before Cagney announced his intended departure, community bankers and their lobbyists were preparing to fight the application’s approval. They succeeded in blocking Walmart’s 2006 application, and they may prevail once again. “The benefits of mixing banking and commerce continue to be a grand illusion,” Camden Fine, president and CEO of the Independent Community Bankers of America, wrote in an American Banker op-ed last month.

Meanwhile, SoFi continues to grow. It funded $3.1 billion in loans last quarter, and posted an adjusted EBITDA of $61.6 million. Rival startup Earnest, in contrast, is looking for a buyer.

“Our guiding principle has always been, if it’s a gray area but it’s good for the consumer, it’s okay,” Cagney told me last spring.


If only he had applied the same principle to his own employees.

This story has been updated.

About the author

Staff writer Ainsley (O'Connell) Harris covers the business of technology with a focus on financial services and education. Follow her on Twitter at @ainsleyoc.