Carvana Drops 14% After $1B Accounting Allegations

Carvana's stock price volatility raises questions about complex related-party transactions and potential regulatory risks.

Jan. 29, 2026 at 3:31pm

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Carvana's stock price experienced a sharp 14% decline in late January 2026 after a short-selling firm, Gotham City Research, released a report alleging severe accounting irregularities and undisclosed financial dependencies between Carvana and its related corporate entities. The report claims Carvana has overstated its earnings by over $1 billion through these related-party transactions. However, Carvana refuted the allegations, stating that all related-party transactions are accurately disclosed.

Why it matters

The Carvana case highlights the risks investors face when a company's financial reporting is called into question, especially when complex related-party transactions are involved. The allegations raise concerns about the company's accounting practices and potential regulatory scrutiny, which could have significant implications for its stock price and future growth prospects.

The details

The Gotham City Research report focuses on Carvana's relationship with related companies controlled by the Garcia family, including DriveTime Automotive Group and Bridgecrest. The report alleges that Carvana has used these entities to subsidize its operations, leading to an overstatement of its earnings by over $1 billion between 2023 and 2024. The report also challenges the market's belief that DriveTime acts as a stable financial backstop for Carvana, citing DriveTime's own cash burn and debt-raising activities.

  • Carvana reported record third-quarter 2025 financial results in late January 2026.
  • The Gotham City Research report was released shortly after Carvana's earnings announcement.
  • The SEC issued a subpoena to Carvana in June 2025 regarding the related-party transactions.

The players

Carvana

An American online used car retailer that operates an e-commerce platform for buying and selling used cars.

Gotham City Research

A short-selling firm that released a report alleging accounting irregularities at Carvana.

Ernest Garcia II

The father of Carvana CEO Ernest Garcia III, who controls DriveTime Automotive Group and Bridgecrest.

Grant Thornton

The auditor for Carvana, DriveTime, and GoFi, which critics argue could represent a potential conflict of interest.

SEC

The U.S. Securities and Exchange Commission, which issued a subpoena to Carvana in June 2025 regarding the related-party transactions.

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What they’re saying

“We must not let individuals continue to damage private property in San Francisco.”

— Robert Jenkins, San Francisco resident (San Francisco Chronicle)

“Fifty years is such an accomplishment in San Francisco, especially with the way the city has changed over the years.”

— Gordon Edgar, grocery employee (Instagram)

What’s next

The judge in the case will decide on Tuesday whether or not to allow Walker Reed Quinn out on bail.

The takeaway

This case highlights growing concerns in the community about repeat offenders released on bail, raising questions about bail reform, public safety on SF streets, and if any special laws to govern autonomous vehicles in residential and commercial areas.