The News
The US Securities and Exchange Commission Monday charged billionaire activist investor Carl Icahn and Icahn Enterprises with civil securities fraud, for failing to disclose billions of dollars worth of personal loans pledged against his company’s stock.
Icahn and the company will pay $500,000 and $1.5 million in fines, respectively, to settle the charges without admitting to or denying the findings, the SEC said.
The SEC accused Icahn of pledging anywhere between 51% to 82% of his outstanding shares to secure personal loans of up to $5 billion, failing to disclose them to shareholders or federal regulators.
SIGNALS
Icahn’s Hindenburg disaster hits home
Icahn’s margin borrowing was first highlighted in a May 2023 report by short seller Hindenburg Research, which accused his firm of “ponzi-like” behavior and alleged it wasn’t estimating the value of its holdings correctly. In a post on X on Monday, Hindenburg alleged Icahn Enterprises is “still operating a ponzi-like structure.” The firm was “continuing to dump overvalued shares on unsuspecting retail investors,” it alleged, citing a $500 million buyback Icahn announced last year that has yet to materialize and the decision to sell $99 million of stock in recent quarters. In a statement, Icahn said Hindenburg published a false report to make money on its short position.
SEC settlement triggers multimillion-dollar wipeout
The accusations by Hindenburg, followed by the SEC’s own probe, have put pressure on Icahn Enterprises’ stock through the last year. In the weeks immediately following Hindenburg’s May 2023 report, Icahn Enterprises’ stock fell 45% to $20.65 per share. The firm took a 4.7% hit after the SEC announced the settlement Monday, shaving $380 million in value off the investment conglomerate. The news wiped out roughly $325 million of Icahn’s personal wealth since he owns 86% of the firm.
Icahn’s influence still holds sway
While Icahn Enterprises’ business practices have been called into question amid the allegations, its founder’s investing prowess across more than four decades has cemented his place in the investing hall of fame. An activist investor, Icahn purchases large positions in companies he believes are poorly run and uses that influence to force change, increasing their stock’s value. Notable moves include takeovers of Trans World Airlines in 1985 and Marvel Comics in 1997, a bullish view on Apple in 2013, and increasing stakes in Herbalife, which sparked a feud with billionaire hedge fund manager Bill Ackman. His expertise created an entirely new term in investing — the “Icahn lift,” which represents a stock’s inflation after Icahn purchases it and other investors gobble up shares in response.