Short seller Hindenburg Research on Thursday accused Carvana of having “long-standing accounting rifts.” bomb report —Stock prices of used car retailers plummeted.
Hindenburg, whose report on companies run by Indian billionaire Gautam Adani led to the tycoon's federal indictment last year, told Carvana after an extensive document review and nearly 50 interviews with industry experts. He said he took a short position.
The report, titled “Calvana: A Father and Son's Accounting Troubles Over the Years,” accused the Tempe, Arizona-based company of insider trading and accounting manipulation.
“Our investigation reveals how accounting manipulation and lax underwriting practices fueled a temporary increase in reported profits while insiders liquidated billions of shares of stock. , disclosed $800 million in loan sales to what appears to be undisclosed related parties,” the short seller claimed.
Carvana shares fell nearly 5% and pared losses to close 2% lower at $199.56 by the closing bell.
The company called Hindenburg's report “intentionally misleading and inaccurate.”
“We remain focused on executing our plans for another great year in 2025,” a spokesperson told the Post.
The company, which was once on the brink of bankruptcy, last reported in October, with third-quarter sales beating analysts' expectations.
The company's stock price soared more than 300% in 2024 as the company cut costs, restructured its debt strategy and improved profits under a turnaround plan led by Chief Executive Officer Ernie Garcia III.
Demand for used cars has also improved in the past few months, helping retailers such as Carvana.
The company took advantage of the then-current shortage of new cars to expand its business during the pandemic, but struggled to sell them at a sufficient profit.
Between August 2020 and August 2021, Garcia III and his father Ernest Garcia II sold $3.6 billion worth of Carvana stock.
The CEO's father sold an additional $1.4 billion in Carvana stock as the stock price soared 42% last year, the report added.
Carvana has grown rapidly while its rivals in the auto industry have struggled. For every $1 increase in net income, the company's market capitalization increased by $139, according to the report.
Hindenburg claimed that a former Carvana director said the company approved 100% of loan applicants.
Hindenburg said Carvana also got some help from Garcia, who sold some of its cars at higher prices to his son's car dealership, Drivetime, in exchange for lower prices. .
Carvana saw a significant increase in borrower extensions in 2024, the highest increase among subprime issuers, the report said. This increase was due to DriveTime's affiliates, which allowed Carvana to continue extending loans and avoid reporting delinquencies, the report said.
Multiple lawsuits have been filed against the father-son duo, including a 2023 lawsuit accusing the Garcias of running a “pump-and-dump” scheme at Carvana to line their own pockets.
Carvana went public in 2017 after spinning off from DriveTime, the predecessor to Garcia II's bankrupt car rental company Ugly Duckling. He took the company private and changed its name in 2002.
In 1990, the elder Garcia pleaded guilty to bank fraud in connection with Charles Keating's $150 billion savings and loan crisis.
Carvana and DriveTime are still intertwined in some way, sharing revenue from loans and selling vehicles to each other. According to CNBC.
