Carvana CEO’s dad goes on $3.6B stock selling spree, raising eyebrows

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Ernie Garcia II, the billionaire father of used car dealership Carvana’s CEO, has sold more than $3.6 billion of company stock since October — raising eyebrows over whether the ownership structure of the firm gives the family too much control.

The only people who have sold more stock than Garcia II since the start of 2020 are Amazon founder Jeff Bezos, Facebook founder Mark Zuckerberg and members of Walmart’s Walton family, The Wall Street Journal reported.

But while those companies have long been massively profitable, Carvana just recently posted its first quarterly profit of $45 million this spring, according to filings with the Securities and Exchange Commission.

Carvana stock tanked at the start of the pandemic, and both Garcia II and his son quickly scooped up $25 million worth of stock each in a private offering below the market price, at $45 per share.

Shares quickly rebounded as the company’s e-commerce platform for used cars saw huge demand during the pandemic. The stock doubled less than two months after the sale and continued to soar.

Disgruntled shareholders then sued the father-son duo, accusing them of insider trading and using the pandemic as an excuse to buy shares at “bargain basement” prices even though they knew Carvana had “a strong balance sheet.”

Ernest Garcia III is the current CEO of Carvana.Ernest Garcia III is the current CEO of Carvana.Brendan McDermid/REUTERS

“The existing structure has allowed them to run this $60 billion public company as if it’s a family firm and for the family’s benefit,” Daniel Taylor, a professor of accounting at the Wharton School, told the Journal. “It’s amazing.”

Garcia II and his son, Ernie Garcia III, control more than 85 percent of the company’s voting power because of a structure that makes share held by the Garcias count for 10 votes compared with those available to the public, the Journal reported, adding that their stock is worth more than $23 billion.

Garcia II’s ownership of the company is so big that his $3.6 billion in recent sales only account for 16 percent of his ownership, the outlet said.

“The interests of the Garcia Parties may not in all cases be aligned with our stockholders’ interests,” the company even warns in annual report to the SEC.

“In addition, the Garcia Parties may have an interest in pursuing acquisitions, divestitures, and other transactions that, in their judgment, could enhance their investment, even though such transactions might involve risks.”

Ernie Garcia II and his sonIn Carvana’s comapny structure, Ernie Garcia II and his son have 85 percent of the voting power.Bloomberg via Getty Images

Garcia II’s $3.6 billion stock selling spree began in October, after shares of the company spiked fourfold to more than $200 per share from March to September 2020.

His stock sales were part of a June 10b5-1, which is a predetermined selling plan that lets insiders avoid the appearance of illegal trading.

But he modified the plan in November, according to the Journal, and then again in May as the company’s stock price continued to soar.

“I’ve studied 20,000 10b5-1 plans,” Taylor told the Journal. “I can’t recall another of this size where there are modifications every six months.”

Vehicles are displayed at a Carvana dealership, which allows customers to buy a used car online and have it delivered or pick it up from an automated-tower, in Austin, Texas, U.S., March 9, 2017. Carvana’s stock at the beginning of the pandemic took a major hit.Brian Snyder/REUTERS

The elder Garcia has found himself on the wrong side of the law in the past. In 1990, he pleaded guilty of bank fraud for his role in Charles Keating’s Lincoln Savings & Loan Association, a shady savings-and-loan bank.

Carvana representatives did not return The Post’s request for comment.

A spokeswoman told the Journal that the company has robust governance and operates in accordance with all rules and regulations. She also noted the company has delivered more than 2000 percent returns to its investors since its public offering.

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