Carvana's (NYSE:CVNA) shares slid about 9% on Wednesday following publication of a critical report by short seller Gotham City Research that alleges significant accounting problems and related-party transactions that were not fully disclosed.
The Gotham City Research report, titled "Carvana: Bridgecrest and the Undisclosed Transactions and Debts," asserts that Carvana's reported earnings for 2023 and 2024 are overstated by in excess of $1 billion. The short seller further contends that the company is more reliant on related parties than its disclosures indicate.
A central strand of the report focuses on the connection between Carvana and DriveTime, a firm also controlled by Ernie Garcia II, who is identified in the filing as the father of Carvana's chief executive officer. According to Gotham City Research, DriveTime recorded operating cash flow outflows totaling more than $1 billion over 2023 and 2024 while simultaneously increasing its borrowings.
The report also claims that DriveTime's leverage has risen to a range of 20-40 times earnings, a level the short seller describes as materially above historical norms. Gotham City Research notes that before 2023, DriveTime's leverage was capped at 10.3 times earnings.
In addition, the report alleges that Carvana has been selling loans to what the research firm terms "third parties" at elevated prices while recognizing gains on those sales. The filing states that Bridgecrest - which it describes as a company wholly owned by Ernie Garcia II - charges those third parties minimal servicing fees in return. Gotham City Research points to what it characterizes as accounting irregularities tied to sales commissions and reported servicing figures.
The short seller sets out several consequential predictions. It expects a delay in Carvana's 2025 Form 10-K, restatements of the company's 2023 and 2024 10-K filings, and a resignation by Grant Thornton - the auditors that the report identifies as serving Carvana, DriveTime/Bridgecrest, and GoFi.
Carvana had not issued a response to the allegations at the time the report circulated.
Contextual note - This report by Gotham City Research prompted an immediate market reaction while raising questions about accounting, related-party disclosures and the financial dynamics between Carvana and entities controlled by the same owner family.