A fresh volley from a short seller sent Carvana's stock tumbling on Wednesday as Gotham City Research accused the online used‑car retailer of leaning on related‑party deals to overstate profitability by more than $1 billion.
The selloff was swift. Shares that had rallied spectacularly since a near‑bankruptcy low in late 2022 gave back a large chunk of the recent gains — closing the session roughly 14% lower at about $410, after earlier moves that pushed intraday losses even deeper.
The allegations in brief
Gotham's report says Carvana’s reported 2023–24 earnings were propped up by transactions tied to companies controlled by the Garcia family: DriveTime Automotive Group and Bridgecrest Acceptance. The short seller claims DriveTime burned over $1 billion in cash and took on extreme leverage — reportedly 20x to 40x EBITDA — to underwrite Carvana’s results. It also alleges Bridgecrest marked down billions of dollars of loans while Carvana recognized gains from loan sales, a dynamic Gotham characterizes as accounting irregularities and a dangerous dependence on related parties.
Those are forceful claims. Gotham published what it said were DriveTime and Bridgecrest 2024 audited financials to back up its case, though outlets covering the story noted they did not independently verify those documents.
Carvana pushes back
Carvana responded quickly, calling Gotham’s report "inaccurate and intentionally misleading." The company said its related‑party transactions are "accurately disclosed" in its financial statements and reaffirmed its plan to release full 2025 results on Feb. 18 and to file its 10‑K on schedule.
That denial sets up a classic corporate tug‑of‑war: a short seller alleging hidden risks and impropriety, and a company insisting its books and disclosures are appropriate.
Market and legal reverberations
The report reopened wounds for investors who remember persistent skeptics such as Hindenburg Research, which previously warned about Carvana’s business model and loan quality. The difference now: Carvana has recovered dramatically in market value since its 2022 trough — moving from penny‑stock territory to becoming a recent addition to the S&P 500 — so any new allegation has a larger dollar impact.
Within hours of Gotham’s report, law firms were already on the scene. A securities litigation firm announced it was investigating whether Carvana committed securities law violations and urged shareholders who lost money to get in touch. Those solicitations are common after sharp declines tied to alleged disclosure failures and can presage class actions if plaintiffs’ lawyers find evidence they believe supports investor claims.
For traders, the immediate question is whether the stock price now reflects a permanent hit to credibility or a temporary overreaction. For regulators and auditors, the questions are more mundane and consequential: Were related‑party transactions fully and accurately described in filings? Were loan sales and any associated gains accounted for in accordance with GAAP?
Why investors care
At stake is more than a few percentage points of market cap. The heart of Gotham’s charge is that Carvana’s reported earnings were not the product of standalone retail performance but instead were supported by complex financing and related‑party arrangements. If true, that would raise questions about the sustainability of results and the visibility investors have into the company’s real economics.
Even if the most dramatic claims prove overstated, the episode underscores the fragility of confidence for companies whose recoveries were built on aggressive supply‑chain, financing and balance‑sheet maneuvers. When a publicly traded company interfaces extensively with entities tied to major shareholders or founding families, searching questions about independence and disclosure naturally follow.
The immediate horizon
Expect volatility. Carvana will be under pressure to provide clarity ahead of its scheduled earnings release and 10‑K filing. Short sellers will be combing through filings and third‑party documents to bolster their case. Plaintiffs’ lawyers and regulators may also probe the trail of transactions if they see gaps between public disclosures and the newly surfaced documents.
For now the message from the company is firm denial and a commitment to meet its reporting timetable; the message from Gotham is an argument that investors have been shown a rosier picture than the underlying numbers support. Whether independent auditors, regulators or the market will be the final arbiter remains to be seen.
Tags: Carvana, Short Seller, Securities, Automotive, Finance