Investing.com -- Pagaya (NASDAQ: PGY ) Technologies (NASDAQ: PGY) shares fell 6% following a short report from Iceberg Research that criticized the fintech company's financial practices and management history. Iceberg Research publicly announced its short position, claiming that Pagaya has used third-party funds to hide significant losses.

The report detailed how Pagaya underwrites consumer loans that were originally rejected by its partners due to high risk. It then sells the majority of these loans through asset-backed securities (ABS) to institutional investors. Iceberg Research highlighted a pattern of questionable management decisions and potential conflicts of interest, pointing to the involvement of Pagaya's CTO Avital Pardo in a previously collapsed company and President Sanjiv Das's history of overlooking misconduct.

Furthermore, the report alleged that Pagaya has been using a fund it manages to purchase the riskiest tranches of its ABS, suggesting a misrepresentation of risk to the market. This claim is supported by instances of Israeli investors being blocked from redeeming their investments, with some facing significant losses.

Iceberg Research also referenced the downgrading of Pagaya's ABS tranches due to credit deterioration and suspected inflated fees charged to its Opportunity (SO: FTCE11B ) Fund. The report projected further impairments to Pagaya's portfolio and raised concerns about the company's recent acquisition of Theorem, suggesting that Pagaya may encounter difficulties in structuring ABS transactions and securing buyers for lower-quality tranches.

The market's reaction to the report indicates investor concern over the allegations and the potential impact on Pagaya's future financial stability. While Pagaya has projected credit risk improvements in 2025, the short seller's analysis predicts deepening losses and a challenging path ahead for the company.

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