Carvana Co (CVNA)

[gentrader]

About the Author/Disclosure

SixDegreesAI builds powerful AI technologies for investors. If you would like to participate in “beta testing” and get early access to our latest AI prototypes, signup for SixDegrees Labs at (http://www.sixdegrees.ai). We are also able to build customized solutions for bespoke projects - please reach out to [e-mail]. We do not hold positions in any public or private securities.

Executive Summary

- The following report further details findings from an experiment we completed last year (and initially posted on Twitter here:

$CVNA is down -90% YTD. Plenty of shenanigans on the way up and back down.

We don’t know anything about Carvana, so instead…

... we had our AI 🤖 poke around

Our AI analyst discovered a number of insights, and honed in on 2 individuals in particular. Quick 🧵

— SixAI - Automated Idea Gen (@SixHQai) July 1, 2022

)
- Join SixDegrees Labs for new reports we will release in the weeks ahead: [www.sixdegrees.ai](http://www.sixdegrees.ai)
- Carvana insider, Mark Walker, may have engaged in related party transactions, contrary to management disclosures
- Thomas Dundon, ex-CEO of Santander Consumer, received special treatment after Santander Consumer facilitated substantial subprime securitization

Background on Carvana, Family Ties, & Criminal History

Carvana is an e-commerce marketplace for used cars - you may have seen ads and news stories about their “car vending machines”(https://www.newsday.com/business/carvana-car-vending-machine-uniondale-ou04jnf6). Additionally, an important source of financing for the business comes from securitizations - a central part of our findings below.

Ernest Garcia II is the Chairman and owner of DriveTime (the predecessor to Carvana). According to Forbes, Ernest Garcia II is a “convicted felon who’s business career has included personal and corporate bankruptcies, overseeing a stock market debacle, and many years of selling used cars and making subprime auto loans. His 1990 criminal fraud conviction stemmed from the small role he played in the Charles Keating scandal involving Lincoln Savings & Loan.” (https://www.forbes.com/sites/nathanvardi/2017/12/18/how-an-ex-con-became-a-billionaire-from-used-cars/?sh=2c8af53d6d3f)

Ernie Garcia III, is the CEO and Chairman of Carvana after Carvana was spun off by DriveTime in 2014.

**Battleground Stock to Test Our Tech**

Carvana has been a battleground stock, and a very well researched name. Part of the short case has been tied to the individuals surrounding the company. Therefore, we tested whether our AI technology would surface novel insights based on the network around Carvana.

Our AI flagged 2 individuals in particular:

**1. Mark Walter**

Mark Walter is the billionaire CEO of investment firm Guggenheim Partners and an owner of the LA Dodgers.(https://www.forbes.com/profile/mark-walter/?sh=7b1da5361233) Mark has been a long-time investor in Carvana through Delaware Life Holdings and CVAN Holdings (a substantial shareholder of Carvana). Mark Walter controls Delaware Life, and CVAN Holdings is a subsidiary of Delaware Life. (https://www.sec.gov/Archives/edgar/data/1690820/000169082020000068/a2020proxystatement.htm)

Mark Walter has also previously been accused of insider trading in relation to Carvana. (https://news.bloomberglaw.com/esg/carvana-ceo-accused-of-insider-trading-on-coronavirus-fears) We believe Mark Walter has also been an important part of the securitizations at Carvana. Let us explain.

The buyer of these securitizations included Sonoran Auto Receivables Trust (https://investors.carvana.com/~/media/Files/C/Carvana-IR/reports-and-presentations/final-carvana-01.pdf). The address listed for Sonoran Auto is 227 West Monroe, Suite 4800 in Chicago, Illinois.

Sonoran Auto Receivables Trust Address can be found here: (https://www.sec.gov/Archives/edgar/data/1690820/000169082017000019/ex104q32017.htm))

Here is where things get interesting. Through EDGAR, it can be found that the address is associated with:

- CVAN Holdings (https://www.sec.gov/Archives/edgar/data/1690820/000089924319020473/0000899243-19-020473-index.htm),
- Delaware Life Holdings (https://www.sec.gov/Archives/edgar/data/1690820/000089924319020473/0000899243-19-020473-index.htm),
- Walter Family Foundation Inc (https://fconline.foundationcenter.org/fdo-grantmaker-profile/?collection=grantmakers&activity=result&key=WALT427), and
- Mark Walter himself (https://www.sec.gov/Archives/edgar/data/1690820/000089924319020473/0000899243-19-020473-index.htm)

Additionally, this SeekingAlpha post provides additional analysis around the potential relationship between Mark Walter and Sonoran. (https://seekingalpha.com/article/4239036-carvanas-subprime-receivable-problem)

Please note: Carvana management went out of their way to specifically mention that these securitized loans were not being sold to Mark Walter, CVAN Holdings, or Delaware Life. In fact, Carvana created this document to respond to shareholders: “Explainer on Recent Refinancing Transactions." (https://investors.carvana.com/~/media/Files/C/Carvana-IR/reports-and-presentations/final-carvana-01.pdf)

Nonetheless, based on what has previously been covered on Mark Walter, and the findings here, we believe that Sonoran Auto Receivables Trust may have a closer relationship to Mark Walter than Carvana would have the market believe. We leave it to you to interpret the implications of a Carvana insider having close relationship with entities that have purchased securitizations from Carvana.

2. Thomas Dundon

The other individual our technology flagged was Thomas Dundon, the ex-CEO of Santander Consumer. He is also the sole member of DDFS Management Company LLC, which is the sole general partner of DDFS Partnership LP.

Santander Consumer was an early supporter of DriveTime and lead a number of early securitizations. (https://www.sec.gov/edgar/search/#/q=carvana&ciks=0001383094&entityName=SANTANDER%2520DRIVE%2520AUTO%2520RECEIVABLES%2520LLC%2520(CIK%25200001383094) (as a reminder, DriveTime was the predecessor to Carvana and spun out Carvana in 2014).

Later, in 2017, after Thomas Dundon had left Santander Consumer, a private placement of Carvana shares were acquired by Thomas Dundon / DDFS. (https://www.sec.gov/Archives/edgar/data/1690820/000114420417064155/tv481503_sc13d.htm) In 2018, DriveTime struck a deal with Employer Direct Healthcare for employee healthcare services (https://blog.drivetime.com/drivetime-enhances-employee-benefits-new-surgical-benefit-surgeryplus/); Employer Direct Healthcare is a portfolio company of Thomas Dundon (https://www.prnewswire.com/news-releases/employer-direct-healthcare-announces-the-completion-of-a-significant-growth-investment-from-serent-capital-301160504.html), who also sits on the board (https://www.edhc.com/about-us/).

Final Thoughts

We believe these findings to be non-obvious and add further color to the larger story around Carvana. For additional reports that we will release in the week ahead, signup for Labs at: [www.sixdegrees.ai](http://www.sixdegrees.ai)

The AI technology from SixDegreesAI powered these findings and we are continuing to build and experiment with new technologies. If you would like to participate in “beta testing” and get early access to our latest AI prototypes, signup for SixDegrees Labs at [www.sixdegrees.ai](http://www.sixdegrees.ai). We are also able to build customized solutions for bespoke projects - please reach out to [e-mail]