Carvana CEO’s father embarks on wave of $ 3.6 billion share sale
Ernie Garcia II, the billionaire father of the CEO of the used car dealership Carvana, has sold more than $ 3.6 billion in company shares since October – raising eyebrows over whether the structure ownership of the business gives too much control to the family.
The only people who have sold more shares than Garcia II since the start of 2020 are Amazon founder Jeff Bezos, Facebook founder Mark Zuckerberg, and members of the Walton family of Walmart, The Wall Street Journal reported.
But while these companies have long been massively profitable, Carvana just posted its first quarterly profit of $ 45 million this spring, according to filings with the Securities and Exchange Commission.
Carvana’s stock collapsed at the start of the pandemic, and Garcia II and his son quickly picked up $ 25 million of shares each in a below-market private offering, at $ 45 per share.
Stocks rebounded quickly 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 stocks at “bargain” prices even though they knew Carvana had “a strong balance sheet” .
“The existing structure allowed them to run this $ 60 billion state-owned enterprise as if it were a family business and for the benefit of the family,” Daniel Taylor, professor of accounting at Wharton, told The Journal. School. “It’s incredible.”
Garcia II and his son, Ernie Garcia III, control more than 85 percent of the voting rights of the company due to a structure that makes the shares held by the Garcias count for 10 votes compared to those available to the public, The Journal reported, adding that their stock is worth more than $ 23 billion.
Garcia II’s ownership in the business is so large that its $ 3.6 billion in recent sales represent only 16% of its ownership, the outlet said.
“The interests of the Garcia parties may not be aligned in all cases with the interests of our shareholders,” even warns the company in its annual report to the SEC.
“In addition, the Garcia parties may have an interest in pursuing acquisitions, divestitures and other transactions which they believe could enhance their investment, even though such transactions may involve risk.”
Garcia II’s $ 3.6 billion share sell-off began in October, after the company’s shares quadrupled to more than $ 200 per share from March through September 2020.
Its stock sales were part of a June 10b5-1, which is a predetermined selling plan that allows insiders to avoid the appearance of illegal trading.
But he changed 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 shots,” Taylor told The Journal. “I don’t remember another one of this size where there are changes every six months. “
This isn’t the first time Elder Garcia has found himself on the wrong side of the law. In 1990, he pleaded guilty to bank fraud for his role in the Lincoln Savings & Loan Association of Charles Keating, a shady savings and loan bank.
Representatives for Carvana did not respond to the Post’s request for comment.
A spokesperson told the Journal that the company has strong governance and operates in accordance with all rules and regulations. She also noted that the company has delivered more than 2,000 percent returns to its investors since its public offering.