Being a public company has many advantages. It is easy to raise capital by selling shares to the public; it enables the corporation to increase its credibility in the public eye, and the executives of the corporation to increase their own credibility and influence thanks to being featured in the media. While all these advantages aforementioned help the public company expand its influence over society, the major drawback of being a public company is that it is exposed to short-selling. Indeed, short-selling, in simple terms, is an investing strategy in which an investor bets on the price of a security to depreciate in value, and makes profits from that security’s depreciation. To short-sell, the investor borrows a security and sells it on the open market, planning to buy it back later for less money. One investment firm which has gained notoriety in the finance industry as a notorious short-seller is Hindenburg Research, LLC.
Hindenburg is well known in financial markets for short-selling public companies that have billions of dollars in market capitalization. In 2020, Hindenburg Research shorted Nikola Corporation, a trucking company designed to disrupt the trucking industry through innovative technology. In September 2010, Hindenburg Research published a report accusing Trevor Milton of corporate fraud and building his company on complete lies. The report led to devastated consequences for Nikola Corporation and its founder. Trevor Milton was eventually convicted by a grand jury of corporate fraud and defrauding investors. The stock price of the company fell by 97% since the report was released. In early 2023, Hindenburg shorted Adani Group. It once again released an exhaustive report accusing Gautam Adani and his company of corporate fraud. In the report, the short-selling investment firm accused the Indian tycoon of market manipulation to inflate the value of its stock. Prior to the release of the report, Gautam Adani was Asia’s richest man and was listed in the top 10 richest people on the Forbes list. 10 days after the report was released, Gautam Adani lost more than $60 billion and dropped off the top 10 Forbes list. Gautam Adani tried to retaliate by denying all the claims, but it was too late. The Adani Group never truly recovered from the short-sell as investors sold faith in the company. Indeed, the company stock declined by more than 48%.
Icahn Enterprises Stock price
Source: Google Finance
In May 2023, Hindenburg Research was at it again, this time, shorting Carl Icahn, who is known to be an aggressive hedge fund manager who built a reputation on Wall Street for hostile takeovers in the corporate world. The short-selling investment firm accused Carl Icahn and his holding company, Icahn Enterprises, in a report released on May 2, 2023; of “Ponzi-like” behavior by using money from new investors to pay out dividends to older ones. Since the report was released, the company stock plummeted significantly. The stock price fell by more than 40%. Hindenburg’s announcement comes a day after Icahn Enterprises reported first-quarter earnings results. Given the decline in share price since the first short report, it could be seen as undervalued if Hindenburg’s accusations aren’t true. The severity of these accusation made the federal authorities involved in the matter. Icahn Enterprises are currently under investigation. If these accusations are true, however, Carl Icahn could potentially be criminally charged. Carl Icahn’s reputation is currently damaged and investors’ suspicions about the company are now cemented.