Carvana Faces Allegations of Financial Misconduct from Short Seller

Shares of the online used vehicle retailer Carvana have come under significant selling pressure following a critical report from short seller Gotham City Research. The firm stands accused of serious financial misrepresentation, sending its stock price sharply lower.

The publication of the report last Wednesday triggered an immediate and severe market response. Carvana's stock price fell by more than 14% in the subsequent trading sessions. After closing near $410 on Wednesday, the decline extended toward the $401 mark by Friday. This volatility has prompted several law firms, including Pomerantz LLP and The Rosen Law Firm, to announce investigations into potential securities law violations. The core legal question is whether Carvana misled investors through the dissemination of materially false or misleading information.

Core Allegations: Inflated Profits and Related-Party Transactions

Gotham City Research's central allegation is that Carvana has materially overstated its profitability. The short seller contends that the company's reported earnings for 2023 and 2024 were inflated by a cumulative total exceeding $1 billion.

The report focuses suspicion on opaque business dealings with entities linked to the Garcia family, which maintains control over Carvana. Specifically, transactions with companies named DriveTime, Bridgecrest, and GoFi are cited. Gotham City Research suggests these related-party relationships may have been used to artificially boost Carvana's reported income.

Should investors sell immediately? Or is it worth buying Carvana?

Company Rebuttal and Operational Context

Carvana's management has issued a firm denial, labeling the short seller's accusations as "false and inaccurate" in an official statement. The company affirmed its commitment to the integrity of its financial reporting.

These allegations emerge against a backdrop of what had been strong operational performance. As recently as the third quarter of 2025, Carvana posted record revenue of $5.65 billion, representing a 55% year-over-year increase. Its operating profit of $552 million had previously impressed analysts, leading firms like JPMorgan and Wells Fargo to raise their price targets.

The Path Forward for Investors

All eyes are now on Carvana's upcoming financial disclosure, scheduled for February 18, 2026. This earnings report is viewed as a critical juncture for the company. It will provide management with a formal platform to address the allegations in detail and will offer investors clearer insight into the validity of both the accusations and the company's recent financial results. Until then, the severe charges cast a shadow over the retailer's celebrated turnaround narrative.