Hindenburg Research said Thursday (Jan. 2) that it has taken a short position in shares of online car dealer Carvana, alleging a “father-son accounting grift” at the firm.
In a report posted Thursday, Hindenburg said that Carvana’s turnaround is a “mirage,” that the company engaged in “sham” deals with a private car dealership run by the father of Carvana’s CEO, and that Carvana faces other challenges as well.
“Our research uncovered $800 million in loan sales to a suspected undisclosed related party, along with details on how accounting manipulation and lax underwriting have fueled temporary reported income growth — all while insiders cash out billions in stock,” Hindenburg said in its report.
Reached by PYMNTS, a Carvana spokesperson said in an emailed statement that Hindenburg’s report is “intentionally misleading and inaccurate.”
“In the 7 years since our IPO, Carvana has been one of the most heavily researched public companies,” the statement said. “The arguments in today’s report are intentionally misleading and inaccurate and have already been made numerous times by other short sellers seeking to benefit from a decline in our stock price. We plan to stay focused on executing our plan for another great year in 2025.”
The Hindenburg report said that Carvana’s stock plunged 99% and the company faced bankruptcy concerns in the year after Ernest Garcia II, the father of Carvana CEO Ernest Garcia III, stopped selling $3.6 billion in stock in August 2021.
It added that Ernest Garcia II has sold another $1.4 billion in Carvana stock since the company’s shares increased by about 42 times.
“As insiders unload stock, the company’s solvency risks remain,” the Hindenburg report said. “Almost 26% of Carvana’s gross profit consisted of sales of customer auto loans to third parties, largely in the risky subprime and deep subprime space.”
Carvana reported Oct. 30 that in the third quarter, its online car marketplace saw a 34% year-over-year increase in retail units sold and a 32% year-over-year increase in total revenue.
“The machine we have built is fundamentally differentiated and the result is an opportunity with few precedents,” Carvana said in its third-quarter letter to shareholders.