Carvana Drops 14% Amid Short-Seller Claims

• Gotham City Research claims Carvana is 'far more dependent on related parties' connected to the Garcia family than disclosed, publishing audited financials of DriveTime and Bridgecrest (both owned by the CEO's father) obtained via Freedom of Information Act.
• The short-seller alleges Carvana's earnings depend on DriveTime's debt issuance, 'toxic' loans, and accounting irregularities, with over $1 billion in overstated earnings across 2023-2024.
• This follows previous short-seller scrutiny, including a bet against Carvana by now-disbanded Hindenburg Research last year, which made similar claims about unstable loans and accounting manipulation.

Summary: Carvana Drops 14% Amid Short-Seller Claims

Market Movement:

Carvana shares plummeted 14.2% on Wednesday following allegations from short-seller Gotham City Research.

Key Allegations:

Gotham City Research claims Carvana overstated its 2023-2024 earnings by more than $1 billion. The firm alleges the online used-car retailer is heavily dependent on related-party transactions involving businesses controlled by CEO Ernie Garcia III's family, specifically entities owned by his father, Ernest Garcia II, Carvana's largest shareholder.

Companies Involved:

• Carvana (CVNA): The target company, an online used-car retailer
• DriveTime Automotive Group, Inc.: Owned by Ernest Garcia II
• Bridgecrest Acceptance Corp.: Also owned by Ernest Garcia II

Supporting Evidence:

Gotham City Research published 2024 audited financials for DriveTime and Bridgecrest, allegedly obtained through the Freedom of Information Act. CNBC has not independently verified these documents.

Specific Claims:

The short-seller accuses Carvana of:

• Depending on DriveTime's debt issuance
• Using "toxic" loans and questionable accounting practices
• Accounting irregularities

Context:

This represents the latest in a series of short-seller attacks on Carvana. Hindenburg Research disclosed a short position last year, making similar claims about unstable loans and accounting manipulation. The company previously faced bankruptcy concerns.

Company Response:

Carvana did not immediately respond to requests for comment on the allegations.

Market Implications:

The significant stock decline reflects investor concern about earnings quality and corporate governance, particularly regarding related-party transactions and financial transparency.