Is Carvana's Ex-Con Co-Founder to Blame for Its Fading IPO?

Carvana, the company we previously razzed for its innocuous multistory automotive contrivances, has suddenly found itself facing some legitimate problems. The car dealer is now famous for two things: vehicular vending machines and a majority shareholder with criminal ties to a major savings and loan scandal — who also happens to be the father of the business’ CEO and co-founder.

The organization is also facing a share price that has dipped 40 percent since its April 27 IPO. However, that can likely be blamed on an over-saturated used car market. Secondhand cars are incredibly affordable at the moment so, if you wanted to support Carvana or any other used vehicle vendor, now would be a good time. You just have to be alright with doing business with Ernie Garcia II, the ex-con investors are likely going to blame if the share price doesn’t bounce back.

Bloomberg Technology is suggesting investors will want answers when the company releases its first earnings report. “A controlling shareholder having a fraud conviction is of interest to other shareholders,” John Coffee, a professor of corporate law at Columbia University, explained to Bloomberg. “I think a company doing a public offering should disclose this factor.”

While that is fair, establishing a company’s value on a CEO’s father’s business dealings from two decades prior is not. Still, with the majority of the tax benefits generated through the IPO going to early investors — including majority shareholder Garcia — is worth being mindful of his background.

Garcia pleaded guilty to bank fraud in the early 1990s for his involvement in the downfall of California thrift Lincoln Savings and Loan Association, which resulted in a national political scandal (after five U.S. senators came were caught accepting bribes). Garcia avoided prison time by testifying for federal prosecutors and received three years probation.

None of that amounts to Carvana being worthy of glowing praise or condemnation, though. The company sells used cars online, with an inventory of roughly 7,300 used and reconditioned vehicles. Customers shop online and can schedule a delivery of the car, or go pick it up from Carvana’s multistory, coin-operated, vending machine gimmick. Considering its regional limitations, fleet size, and the abysmal condition of the used car market, Carvana may have been slightly overvalued. But that’s about all you can fault it with right now, and none of that has anything to do with the majority shareholder’s identity.

[Image: Carvana]