Carvana, the online pre-owned car retailer, is embroiled in a major scandal following a report by Hindenburg Research, which alleges the company is involved in fraudulent accounting practices reminiscent of the Enron scandal. The report suggests that Carvana has been artificially inflating its performance metrics through questionable financial maneuvers, including recognizing unwarranted revenue and engaging in undisclosed transactions with DriveTime, a company owned by CEO Ernie Garcia III's father.
Key revelations from the report indicate that Carvana has been selling auto loans to undisclosed buyers, with speculation that Cerberus Capital could be one of the buyers. Additionally, the company has issued over $15.4 billion in asset-backed securities while maintaining a stake in these assets, raising concerns about the quality of loans being written.
Former employees have disclosed that Carvana has been lowering its standards for vehicle quality and manipulating financial results by timing loan sales, leading to inflated profit figures. Legal actions have already been initiated by pension funds alleging 'sham deals' between Carvana and DriveTime. The implications of these findings could be severe, potentially leading to further investigations and legal repercussions for the company and its executives.
As the scandal unfolds, the integrity of Carvana's financial practices is under scrutiny, with researchers describing the situation as 'an accounting grift for the ages.'