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Carl Icahn, one of Wall Street’s most prominent activist investors, and his company have agreed to settle US regulatory charges that they failed to disclose the billionaire had pledged company securities as collateral for personal loans.
Icahn and his Icahn Enterprises company will pay $500,000 and $1.5mn, respectively, to settle the civil charges from the US Securities and Exchange Commission, according to a statement from the regulator on Monday. Neither he nor Icahn Enterprises admitted to or denied the agency’s findings.
The SEC alleged that since at least the end of 2018, Icahn had pledged more than half of his company’s outstanding shares as collateral for his personal margin loans worth billions of dollars. Icahn failed to disclose those pledges until February 2022, along with other additional information required by regulators, the SEC said.
The SEC investigation followed a report published in May 2023 by New York-based short seller Hindenburg Research, which alleged that publicly traded Icahn Enterprises was overvalued, had inflated the value of assets on its balance sheet and was engaged in “Ponzi-like economic structures”.
Icahn rejected the report, calling it “self-serving”. Regardless, the billionaire’s company has been under intense pressure ever since and its stock has slid more than 20 per cent over the past year. Trading under the ticker symbol IEP, Icahn Enterprises fell a further 4.7 per cent on Monday.
“The federal securities laws imposed independent disclosure obligations on both Icahn and IEP. These disclosures would have revealed that Icahn pledged over half of IEP’s outstanding shares at any given time,” said Osman Nawaz, chief of the complex financial instruments unit at the SEC’s enforcement division. “Due to both disclosure failures, existing and prospective investors were deprived of required information.”
Jonathan Streeter, a lawyer advising Icahn Enterprises, said that after the Hindenburg report, the federal government launched an investigation into the short seller’s claims in which “Carl Icahn fully co-operated”.
“In short, the government found absolutely no fraud and did not find any inflation of IEP’s [net asset value] or impropriety in its dividends,” Streeter said in a statement. “Instead IEP is settling an unrelated disclosure violation on issues that were reviewed by outside advisers at the time in question.”
Icahn Enterprises disclosed in a regulatory filing on Monday that the company last May was contacted by the US attorney’s office for the Southern District of New York — a division of the US Department of Justice — but that it had no “substantive communication” since. SDNY did not respond to a request for comment.
The way that Icahn structured the personal loans made him susceptible to margin calls if the company’s shares declined, Hindenburg argued in the report last year.
Following the short seller report, Icahn restructured a multibillion-dollar personal margin loan into a three-year term loan in an agreement with five banks. However, the deal required him to pledge almost all of his stock in Icahn Enterprises as collateral.
The SEC settlement comes just weeks before Icahn will have to begin making quarterly payments as part of the restructured loan deal. He will eventually have to repay the $2.5bn in final principal when the loan matures in 2026.
After the Hindenburg report, “the government investigation that followed has resulted in this settlement which makes no claim IEP or I inflated NAV or engaged in a ‘Ponzi-like’ structure,” Icahn said in a statement. He added that the short seller’s report did harm to the company and its investors.
Hindenburg said in a post on X that “Icahn rightly got charged by the SEC for failing to disclose details of his massive margin loan,” repeating its claim about Icahn Enterprises’ structure and noting it lost almost $1bn in its latest quarter. Hindenburg is still shorting the conglomerate.