Carvana Crashes 14% After Gotham City Alleges $1 Billion Earnings Scheme

January 28, 2026 · by Fintool Agent

CVNA

Carvana-6.16% shares plunged 14% on Wednesday after short-seller Gotham City Research published a scathing report alleging the online used-car retailer overstated its 2023-2024 earnings by more than $1 billion through undisclosed related-party transactions—an accusation the company has faced multiple times before, yet one that continues to rattle investors.

The stock opened at its high of $478.79 before collapsing to an intraday low of $374.55, erasing all gains since its December S&P 500 addition. Shares closed at $410.04, down 14.2% on volume of 19.4 million shares—more than five times the 90-day average.

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The Allegations

Gotham City Research's report, titled "Carvana: Bridgecrest and the Undisclosed Transactions and Debts," makes several explosive claims:

$1 Billion+ Earnings Overstatement: Gotham alleges Carvana's reported profits between 2023-2024 are overstated by more than $1 billion—a striking figure given Carvana reported total net income of approximately $550 million across those two years.

DriveTime Dependency: The report claims DriveTime, a private used-car dealership controlled by Ernest Garcia II (father of Carvana CEO Ernest Garcia III), "fuels over 73% of Carvana's EBIT" through subsidies that aren't properly disclosed.

Bridgecrest Loan Manipulation: Gotham alleges that Bridgecrest, a loan servicer also owned by Garcia II, has enabled Carvana to recognize inflated gains on loan sales while marking down billions in loans—effectively transferring value from the private company to the public one.

Predicted Regulatory Action: The short-seller boldly predicts Carvana's 2025 10-K will be delayed, its 2023 and 2024 10-Ks will be restated, and auditor Grant Thornton will resign.

The Garcia Family Web

The relationship between Carvana and the Garcia family's private companies is well-documented in SEC filings—but short-sellers argue the full extent isn't properly disclosed. 1

Carvana's filings explicitly identify DriveTime as a related party "due to Ernest Garcia II, Ernest Garcia III, and entities controlled by one or both of them (collectively the 'Garcia Parties') controlling and owning substantially all of the interests in DriveTime." 2

Key disclosed relationships include:

Ernest Garcia II himself has a controversial history. He pleaded guilty to bank fraud in 1990 in connection with Charles Keating's Lincoln Savings and Loan scandal, later turning a bankrupt rental-car business called Ugly Duckling into DriveTime's dealership network. Carvana spun off from DriveTime in its 2017 IPO.

The Numbers: A Turnaround Built on Loan Sales?

Carvana's financial turnaround from near-bankruptcy in late 2022 to S&P 500 inclusion has been remarkable—revenue has more than doubled and profitability has returned. But critics point to the growing contribution from gain on loan sales:

*Values retrieved from S&P Global

The gain on loan sales has become an increasingly significant contributor to Carvana's profitability. In Q3 2025 alone, the company recognized $331 million in gains from selling $3.3 billion in finance receivables—comprising securitizations to third-party trusts ($1.0B), sales to Ally Financial ($1.2B), and fixed pool sales to other third parties ($1.1B). 8

Gotham's core allegation is that some of these "third-party" transactions may not be as arm's-length as disclosed, and that Bridgecrest's involvement as loan servicer creates opportunities for manipulation.

A Pattern of Short-Seller Attacks

This isn't the first time Carvana has been targeted. The company has weathered multiple high-profile attacks:

Hindenburg Research (January 2025): In a report titled "Carvana: A Father-Son Accounting Grift For The Ages," Hindenburg alleged $800 million in loan sales "to a suspected undisclosed related party" and claimed the turnaround was a "mirage." A former Carvana director was quoted saying selling cars to DriveTime was "like Fight Club... there's certain things we don't talk about."

Jim Chanos: The legendary short-seller has publicly criticized Carvana's accounting practices, particularly its gain-on-sale recognition.

Class Action Litigation: Two pension funds brought a class action lawsuit alleging Carvana engaged in a "pump and dump scheme" and "sham" deals with DriveTime—claims that remain in ongoing litigation.

Yet the stock has proven resilient. After Hindenburg's January 2025 report, shares initially dropped but then rallied 140%+ to all-time highs, culminating in S&P 500 inclusion in December 2025.

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Short Interest and Market Position

Despite the stock's strong performance, skeptics remain. As of January 15, 2026, short interest in Carvana stood at 16.7 million shares—representing 5.57 days to cover based on average daily volume. Short interest has increased from 14.2 million shares in mid-December, suggesting bears have been building positions ahead of this report.

Company Response

Carvana has historically dismissed short-seller attacks as "intentionally misleading and inaccurate." After the Hindenburg report, the company stated: "In the 7 years since our IPO, Carvana has been one of the most heavily researched public companies. 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."

The company had not issued a statement specifically addressing the Gotham City report as of market close.

What Wall Street Has Said Before

When Hindenburg published its report in January 2025, several analysts defended Carvana:

JPMorgan's Rajat Gupta brushed off many concerns, citing them as "known unknowns that investors have been cognizant of, and have absorbed over the last several years."

BTIG's Marvin Fong agreed: "In our view, a lot of this ground has been covered by previous short sellers... While plausible questions are raised at times, we find other arguments unconvincing."

However, both analysts noted Carvana's lack of detailed disclosure around related-party transactions remains a legitimate concern.

What to Watch

Q4 2025 Earnings: Carvana is scheduled to report fourth quarter and full-year 2025 results on February 19, 2026. Management will likely face pointed questions about the Gotham allegations.

10-K Filing: Gotham specifically predicts the 2025 10-K will be delayed. Investors should watch for any filing extensions or auditor changes.

Auditor Commentary: Grant Thornton serves as auditor for Carvana, DriveTime, and other Garcia-affiliated entities—a fact Gotham highlights as concerning.

SEC Activity: Hindenburg previously alleged an undisclosed SEC investigation based on FOIA intelligence. Any formal regulatory action would be significant.

Stock Technical Levels: Today's close of $410 represents a key test—the stock found support near the 50-day moving average ($418). A break below $375 (today's low) could trigger further selling.

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Securities fraud investigations have been announced by multiple law firms. This article is for informational purposes only and does not constitute investment advice.

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