The Lemonade Stand: Carvana (CVNA) Sells Subprime Loans to Bridgecrest. How is That Against the Law?

**The Lemonade Stand:** Little Ernie starts a lemonade stand. That’s the spirit! Go get that money!! What could be more American? But there is a problem. There are a LOT of lemonade stands. Sales are slow. The competition is fierce. Ernie is losing money. And Ernie is very, very sad. Ernie’s dad has an idea! He comes over and buys $10,000 of lemonade. Wow! Amazing!! Flush with excitement, Ernie rushes to a group of investors and says “IM THE GREATEST LEMONADE SALESMAN IN THE WORLD!” And oops! Little buddy “forgot” to mention his dad bought that huge order of lemonade. No harm no foul. Right? The investors are impressed by Ernie’s totally real and not at all fake numbers. This kid is a genius! Ernie has reinvented the lemonade industry! Little Ernie’s Lemonade Stand gets a 93x earnings valuation and all of a sudden his business is somehow worth $930,000. Wow fantastic! Ernie sells some of his ownership shares and pays his dad back... with a little extra on top. The next day sales are slow again, so Ernie’s dad comes over and buys another $20,000 of lemonade. Wow great job Ernie!! Ernie rushes back to his investors and he is so proud “SALES HAVE DOUBLED OVERNIGHT! IM THE GREATEST LEMONADE SALESMAN IN THE WORLD.” Oopsie little buddy. Again Ernie “forgot” to tell his investors the majority of his profits came from his dad. Is dad drinking all that lemonade? Absolutely not. That stuff is garbage and he flushes what he can’t stomach. And guess what? Revenue has doubled so investors are in a frenzy! Little Ernie’s Lemonade Stand is now worth $1,860,000. Great job Ernie!! Ernie sells some of his ownership shares, pays his dad, and next day Ernie’s dad comes back with $40,000… **Now replace lemonade with subprime loans.** **Do you see how this might be illegal?** **Credentials**: I am a 14 year automotive veteran and a 15 year retail stock and options trader. I am not a financial advisor. This should not be taken as financial advice. **Position disclosure**: I am highly bearish on CVNA. I have written a dozen articles critical of Carvana. I am net short Carvana until their stock reaches a cap closer to their enterprise value of $35-$70 a share.