Well-known short seller Hindenburg Research announced a bet against it Caravan On Thursday, he claimed the web used automotive retailer's recent turnaround was a “mirage” supported by unstable loans and accounting manipulation.
The report focuses on Carvana's credit sales practices and the business relationship between CEO Ernie Garcia III and his father, Ernest Garcia II, Carvana's largest shareholder.
Shares of Carvana fell about 3% on Thursday. The stock rose nearly 400% in 2023 as the corporate improved results and cut costs as a part of a turnaround plan led by Ernie Garcia III.
Carvana declined to comment on the Hindenburg report, which was titled: “Carvana: An accounting dispute between father and son for the ages.”
Hindenburg says it uncovered $800 million in loan sales “to a suspected undisclosed related party,” “along with details about how accounting manipulations and lax underwriting caused a temporary spike in reported revenue – all while insiders are paying out billions of dollars in shares.”
Hindenburg also alleges that an increase in loan extensions at Carvana is being facilitated by the company's loan servicer, a subsidiary of private auto dealer DriveTime, which is operated by Garcia II. “The company appears to be avoiding reporting higher delinquencies by instead granting credit extensions,” Hindenburg said.
CNBC could not immediately verify the allegations in the Hindenburg report.
This is not the first time that the Garcia family and their control of the company have become the target of some investors. In recent years, there have been lawsuits alleging that the Garcias operate a “pump-and-dump” scheme to complement themselves.
Carvana went public in 2017 after spinning off DriveTime.
DriveTime was once a bankrupt rental automotive company called Ugly Duckling, which Garcia II, who pleaded guilty to bank fraud in 1990 in reference to Charles Keating's Lincoln Savings & Loan scandal, developed right into a dealer network.
Notably, Carvana still relies on the corporate to service and collect automobile financing, and the 2 corporations share the revenue generated from the loans. The corporations also occasionally sell vehicles to one another, and Carvana leases several of DriveTime's facilities along with profit-sharing arrangements.
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