Carl Icahn, approaching the nineties, thought that he would be retiring peacefully with a very comfortable net worth until Hindenburg Research decided to give him a hard time. Indeed, the 87-year-old hedge fund manager was worth $25 billion prior to Hindenburg’s report’s release. Since the report has been released, the once ruthless corporate raider of the 1980s who normalized hostile takeovers on Wall Street, has seen his wealth plummet significantly. From a $25 billion net worth, Icahn’s personal wealth slumped to $10 billion. He remains, of course, a billionaire; a deca-billionaire to be accurate; but his wealth experienced a $15 billion cut. While Carl Icahn is not happy about seeing his wealth declining, he is more concerned about the legal repercussions that Hindenburg’s accusations could have on his company, and reputation. Being accused of a financial crime is a serious offense that could lend the accused in jail for a very long time.
In early May; Hindenburg Research; perhaps the most notorious short-selling investment firm in the financial industry; released a report accusing Carl Icahn and his holding company, Icahn Enterprises, of engaging in “Ponzi-like economic structures,” in which Icahn Enterprises would be moving money from new investors to older ones.
In the report, Hindenburg Research specifically accused Icahn Enterprises of “intentionally inflating” the value of its stock. According to the short-seller, Icahn’s valuation for the company, its second-largest holding, fails to account for a cyclical decline in refinery margins as well as a major drop in the price of fertilizer a major product for CVR. Following the accusation, Icahn Enterprises’ stock price plummeted more than 43%.
Since the release of the report, an open investigation with the U.S. Attorney’s Office for New York’s Southern District is ongoing. Beyond the accusations of inflated valuation, the Southern District prosecutors have also looked at whether Icahn took advantage of a longtime friendship with then-President Donald Trump, whose administration he joined as an unpaid special advisor. In November 2017, Icahn Enterprises revealed in a regulatory filing that Manhattan federal prosecutors had issued it subpoenas seeking information on whether Icahn had sought to influence environmental policy in a way that would benefit CVR Energy Inc., an independent oil refiner in which he owns a majority share.
Rather than focus on a specific transaction, the Hindenburg report alleges Icahn Enterprises engaged in a lengthy pattern of mismarking the value of its assets. Southern District U.S. Attorney Damian Williams has made cracking down on mismarking—the use of questionable methods to make illiquid and private assets look more valuable than they are—a major focus of the office.
The 87-year-old activist investor told Bloomberg that while he did not expect the short-seller to target him, he’s relishing the battle to defend his business empire. Moreover, Icahn said at the time that Hindenburg’s report was purely ‘self-serving” and that he stood by his conglomerate’s public disclosures. Icahn claimed that he is still pressing ahead with an attack of his own against gene-sequencing company Illumina, which is set to hold its annual shareholder meeting on Thursday. We do not know yet what Icahn will do. But since his reputation and potentially his freedom is at stake, we believe that he will do whatever it takes to disprove these allegations. On the other hand, it is ironic to see to this karmic display. Icahn used to hunt corporations and destroy careers in the process during his hostile takeovers. Now, Hindenburg Research is making him taste his own medicine.