The Department of Justice has launched an investigation into Arbor Realty Trust following a series of reports and accusations of fraud by short sellers.

The federal prosecutors, along with the FBI's New York office, are examining the multifamily real estate investment trust’s lending practice and loan book, Bloomberg reports.

“We routinely cooperate with regulatory inquiries and are very confident that we conduct ourselves properly,” Arbor told Bisnow in a statement. “We look forward to our second-quarter earnings call.”

Short seller Viceroy Research is on the forefront of the attacks on the REIT. In a previous report, Viceroy accused Arbor of fraud, claiming it hides losses by financing the purchase of assets from its own foreclosures in off-balance-sheet transactions.

Viceroy released another report Friday claiming that Moneil Capital, an Arbor borrower, has initiated a capital call as it seeks to restructure the loans tied to a Houston apartment complex, the Regard at Med Center.

Arbor reportedly has $52M of loans secured against the property, which was most recently valued by Arbor at the same amount. However, in the report, Viceroy claims that the property appraisal is “ludicrously overstated and appears fraudulent.”

“This loan is severely impaired but no impairment has been made by Arbor,” the report says. “Moneil has outrightly stated that selling the property or refinancing is not an option, as it will completely wipe out investors.”

In a statement to Bisnow following news of the investigation, Viceroy doubled down on its fraud allegation.

“We have provided investors with substantial data, surveillance reports, and case studies to support the fact that Arbor's book requires significant impairment which will wipe out equity holders,” the group said in an email. “We maintain our belief that Arbor's equity is worthless. It is no surprise that Arbor is being investigated, as the fraud is so obvious.”

Arbor has repeatedly attempted to reassure borrowers and investors, despite distress in the multifamily sector.

Prior to Arbor's fourth-quarter earnings call, a Cred iQ report showed that borrowers representing a quarter of Arbor’s securitized debt were late on payments in January, then many became current soon after.

But Arbor ended the year beating analyst expectations. The multifamily lender ended the fourth quarter with a net income of $91.7M, up from $88.2M during the same period in 2022.

“2023 was one of our best years as a public company, despite an extremely challenging environment,” Arbor President and CEO Ivan Kaufman said at the time.

The next quarter, Arbor took to modifying approximately $1.9B in troubled loans, including extending maturity dates and offering “temporary rate relief.”

The DOJ didn't immediately respond to Bisnow’s request for comment.