Shares of online used-car retailer Carvana plummeted 14.2% on Wednesday after short-seller Gotham City Research released a report accusing the company of overstating its 2023-2024 earnings by more than $1 billion. The allegations center on the company's financial reliance on businesses controlled by the family of CEO Ernie Garcia III.

In its report, Gotham City Research claimed Carvana's earnings are dependent on debt issuance, "toxic" loans, and accounting irregularities tied to DriveTime Automotive Group and Bridgecrest Acceptance Corp.—both owned by Ernest Garcia II, Carvana's largest shareholder and the father of its CEO. The short-seller published what it said were the 2024 audited financials of these entities, obtained via the Freedom of Information Act, to support its claims.

Carvana swiftly dismissed the report as "inaccurate and intentionally misleading" in an emailed statement, asserting that all related-party transactions are properly disclosed in its financial filings. The company also reconfirmed its plan to release 2025 earnings on February 18, countering Gotham's suggestion that it would need to delay its annual filing.

This is the latest in a series of short-seller attacks on Carvana, which faced similar accusations from Hindenburg Research last year. Despite the controversy, Carvana's stock has experienced a dramatic recovery since late 2022, rallying from under $5 per share to over $477 earlier this week before Wednesday's sharp decline.

The allegations introduce significant uncertainty as the company prepares to report annual results, putting its recent turnaround story and its recent inclusion in the S&P 500 under heightened scrutiny.