A short seller, Hindenburg Research, has accused Carvana of an accounting scandal, claiming the company’s recent turnaround is a “mirage” fueled by unstable loans and manipulation. The report focuses on Carvana’s practice of loan sales and the business relationship between CEO Ernie Garcia III and his father, Ernest Garcia II, who is the company’s largest shareholder.
Carvana responded to the allegations, calling Hindenburg’s report “intentionally misleading and inaccurate.” However, Hindenburg Research claims to have uncovered $800 million in loan sales to a suspected undisclosed related party, as well as details on how accounting manipulation and lax underwriting have fueled temporary reported income growth – all while insiders cash out billions in stock.
The company’s loan servicer, an affiliate of private car dealership DriveTime, is also at the center of the allegations. Hindenburg claims that Carvana is avoiding reporting higher delinquencies by granting loan extensions instead. While some analysts have brushed off the concerns raised in the report, others have noted that some of the issues raised are “known unknowns” that investors have been aware of for several years.
This is not the first time the Garcia family and its control of Carvana have been scrutinized. Lawsuits have alleged that they run a “pump-and-dump” scheme to enrich themselves, and Carvana went public in 2017 after spinning off from DriveTime. The company still relies on DriveTime for servicing and collections, generating revenue from the loans.
Source: https://www.cnbc.com/2025/01/02/hindenburg-shorts-carvana-stock.html