Enablers

There’s an obvious growing failure at the center of modern markets that, as a former short seller, has become beyond obvious to me over the years.

It isn’t just fraud or aggressive accounting. It’s the ecosystem that allows both to thrive: financial media that won’t press, and a sell side that won’t risk upsetting management teams they depend on for access.

We’ve seen this movie before. Enron did not implode because there were no warning signs. It imploded because the warning signs were inconvenient. There were whistleblowers. There were people inside the system who knew the numbers didn’t add up. But complexity was treated as brilliance, and skepticism was treated as cynicism. Analysts admired the innovation. Television hosts admired the executives.

And the stock went up—until it didn’t.

The same institutional shrug preceded the collapse of Bernard Madoff. And one line is enough about Harry Markopolos: he handed regulators a mathematical proof Madoff’s returns were impossible, and they filed it away until the financial crisis caused Madoff to collapse.

The common thread wasn’t ignorance. It was incuriosity. Or, more precisely, selective incuriosity.

Now consider Carvana. For years, short sellers have argued that Carvana’s reported outperformance relative to peers strains economic logic. Short seller reports have laid out, in detail, why investors should be extremely cautious with the subprime used car dealer whose numbers blow away its competitors somehow. All you have to do is take an hour and read the damn reports — something apparently no one on the street is capable or doing, or cares to do.

Used car retailing is not software. It is capital intensive, cyclical, and brutally competitive. Yet the narrative presented has often been one of operational genius and dramatic margin recovery.

Skeptics have focused on the company’s web of related-party entities tied to the founding family, including DriveTime, Bridgecrest, and GoFi. The allegation is straightforward: reported earnings are materially influenced by transactions within that ecosystem—loan sales, internal transfers, and accounting treatments that allow gains to be recognized without corresponding arm’s-length economics.

Recent work by Gotham City Research didn’t merely wave at “aggressive accounting.” It walked through the structure in detail, connecting financial statements across entities and suggesting that the apparent profitability is deeply intertwined with highly leveraged affiliated companies. The gist of the allegation is that Carvana is selling off shitty subprime loans to an off-balance sheet entity controlled by the CEO’s father, booking the sales as earnings, while the private company takes on massive losses that it isn’t forced to report as transparently as a public company would. This would allow Carvana to post huge “earnings” while another entity absorbs massive losses.

It’s not so dissimilar to Enron, where debt was shifted into off-balance-sheet special purpose entities that were technically separate but effectively controlled by the company, allowing liabilities to disappear from reported financial statements.

If Gotham’s analysis of Carvana is directionally right (and I believe it is) then remove the internal scaffolding and the earnings picture changes dramatically. That is not a personality dispute. That is a bona fide accounting issue that should make any auditor blush.

And yet the scrutiny from mainstream financial media and much of the sell side has been tepid at best. One example stands out. On CNBC last week, CEO Ernie Garcia was asked whether he was selling loans to his father’s company. The answer was an emphatic no. Case closed, apparently. No follow-up. No clarification. No effort to explore whether loans were being sold to intermediaries that ultimately funneled them into the same related-party ecosystem. No attempt to dissect structure versus headline.

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When Sara Eisen brings up a “new short seller report” on air, Garcia literally just says “Boo! Come on!” as though he shouldn’t even have to answer the question — on which hangs the balance of his entire company!

What the f**k?

Anyone familiar with related-party accounting understands how this works. The literal answer to a narrow question can be technically true while leaving the economic substance untouched. The job of a financial journalist is to ask the second question. And sometimes the third. Instead, too often the interview moves on to “walk us through your growth strategy.”

Meanwhile, short sellers are framed as villains for doing forensic accounting in public. Executives blame “misinformation.” Analysts reiterate price targets. Television panels debate “sentiment.” Accounting rules, it seems, are optional so long as the chart is pointing up.

There is an obvious incentive problem here. Sell-side analysts depend on management access and underwriting relationships. Media outlets depend on executives willing to come on air. Executives depend on elevated equity valuations. Retail investors depend on all of them to be honest brokers. Guess which group has the least leverage.

When a complex related-party structure appears to underpin reported results, that deserves relentless scrutiny. Instead, what we often get is narrative management. The burden of proof is inverted. Skeptics must prove fraud beyond a reasonable doubt, while promoters only need to gesture at “compliance with accounting standards.” As if technical compliance and economic transparency are interchangeable.

This dynamic is not just frustrating. It is unfair to retail investors. They do not have access to private diligence sessions. They do not have the resources to untangle off-balance-sheet relationships. They rely on media summaries and research notes to understand what they own. When journalists decline to press and analysts decline to challenge, informational asymmetry widens. Retail ends up buying the story long after the people closest to it understand the risks.

Drawing echoes of Enron is not to claim identical outcomes. It is to highlight a pattern: complex structures, related-party opacity, extraordinary reported performance, dismissal of critics, and an ecosystem oddly comfortable with all of it. The pattern is what should make people uneasy.

If Carvana’s accounting is sound, then it should survive granular, adversarial analysis. If it is not, then blaming short sellers will not change the math. Markets do not care about indignation. They care about cash flow.

The most disturbing part of all this is not any single allegation. It is the normalization of incuriosity. The willingness to accept the first answer. The comfort with surface-level questioning. The reflex to treat skepticism as hostility.

Companies do not implode because there were no red flags. They implode because too many people saw it coming and still and decided not to tug on the thread or say anything. And when that happens, it is not the executives, the analysts, or the television hosts who pay the price. It is the retail investor who trusted that someone, somewhere, was asking the second question when they weren’t.

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