Carvana Faces Scrutiny Over Allegations of Accounting Manipulation
Carvana, the online used car retailer, is currently under fire following allegations made by noted short seller Hindenburg Research. The research firm has raised concerns about Carvana’s recent turnaround, labeling it as a “mirage” supported by questionable practices, including unstable loans and accounting manipulation.
According to Hindenburg Research, Carvana’s CEO Ernie Garcia III and his father, Ernest Garcia II, who is the company’s largest shareholder, have been at the center of these allegations. The report specifically focuses on Carvana’s loan sales practices and the business relationship between the father-son duo.
Allegations of Financial Irregularities and Insider Enrichment
Hindenburg Research claims to have uncovered $800 million in loan sales to a suspected undisclosed related party, raising concerns about transparency and financial integrity within Carvana. The report also highlights instances of accounting manipulation and lax underwriting practices that have allegedly contributed to temporary income growth.
Additionally, the research firm suggests that an increase in borrower extensions at Carvana may be facilitated by the company’s loan servicer, an affiliate of DriveTime, a private car dealership run by Garcia II. This has led to accusations of avoiding reporting higher delinquencies by granting loan extensions instead.
History of Controversy Surrounding the Garcia Family
This is not the first time that the Garcia family’s involvement in Carvana has come under scrutiny. In recent years, there have been lawsuits and allegations of a “pump-and-dump” scheme orchestrated by the Garcias to benefit themselves financially. Carvana, which went public in 2017 after splitting from DriveTime, continues to have close ties to the dealership network.
It is important to note that Carvana has not yet responded to the allegations made by Hindenburg Research, and CNBC has been unable to independently verify the claims. The stock of Carvana experienced a 3% decline following the release of the report, raising concerns among investors about the company’s financial practices and future prospects.
