On Tuesday, Wall Street was riveted by a report from short seller Nate Anderson’s Hindenburg Research that targeted legendary billionaire investor Carl Icahn. Anderson highlighted issues that had been relatively well known for years, like that Icahn’s investment fund had suffered a decadelong losing streak and that his public company had been paying out rich dividends while raising $1.7 billion by selling shares in the stock market.
But what perhaps took Wall Street by surprise was the existence of personal indebtedness, specifically that Icahn borrowed against shares, or units, he owned in Icahn Enterprises LP (IEP), his publicly traded investing vehicle.
Calls to Icahn for comment weren’t returned. “We stand by our public disclosures and we believe that IEP’s performance will speak for itself over the long term as it always has,” Icahn said in the statement issued Tuesday.
Hindenburg Research typically aims to profit from the decline in value of the shares of companies that it writes negative reports about. The short seller notably targeted zero-emission-truck maker Nikola about three years ago and India’s Adani Group earlier this year.
For more, see: Icahn calls Hindenburg short-seller report self-serving, as market value of his company’s stock plunges by $4 billion
The personal indebtedness had been fully disclosed by Icahn in securities filings, but few on Wall Street seemed to take notice. While Icahn himself can play a big role in the stock market with activist campaigns he wages against corporate boards, Icahn Enterprises itself isn’t a widely followed stock because Icahn owns the majority of the units. Few big institutions own it.
Icahn’s margin loan was disclosed in Icahn Enterprises’ February 2022 10-K filing with the Securities and Exchange Commission. The personal loan is disclosed in a footnote to the disclosure that Icahn owned 257 million units of Icahn Enterprises. The company IEP said 168 million of those units had been “pledged as collateral to secure certain personal indebtedness.” For years prior to the filing, Icahn had no such disclosure.
The filing didn’t mention the purpose of the loan nor where the proceeds were directed, but it did indicate that Icahn had “sufficient additional assets to satisfy any obligations pursuant to these loans without recourse to the depositary units.”
Icahn also said that he had “no need or intention to allow foreclosure on such collateral.” The company again disclosed the personal indebtedness in a February filing, saying that 181 million units had been pledged as collateral at the time. The number of units pledged to secure the loans fluctuates with the changes in the number of units outstanding and the market price, the filing added.
Anderson pointed out in his Hindenburg report that Icahn’s investment fund has lost 53% of its value since 2014. Icahn’s investment fund is the vehicle he uses to make activist bets. Its assets are made up of money contributed by Icahn Enterprises and Icahn personally. For his part, Icahn’s ownership of the fund was $4.9 billion at the end of 2022, SEC filings show, just over half of the fund.
Icahn’s investment fund has performed poorly in the past decade. For many years he has publicly expressed suspicion of the bull market that raged around him. He shorted the stock market in a big way as a hedge against his long activist positions. Going into 2021, for example, Icahn’s investment fund had a short exposure of 142%, SEC filings show.
As the stock market continued to rise, those hedges produced losses for Icahn’s investment fund. The last big leg down was in 2020, when the fund lost 14.3%, SEC filings show. The fund stabilized over the last two years and was basically flat, avoiding last year’s market bloodbath.
Filings show that in 2020, Icahn Enterprises invested $750 million in the investment fund to replenish it. For his part, Icahn contributed $1.2 billion, mostly of “like-kind investments” in the fund. For years, Icahn had maintained a portfolio that looked similar to the investment fund outside of its structure.
Bloomberg News reported that it wasn’t previously aware of the footnote in 2022 that revealed Icahn’s pledge of a significant number of his shares in Icahn Enterprises. On Tuesday, Bloomberg News accounted for the margin loan collateralized by his IEP units, an accounting change that reduced Bloomberg’s estimate of Icahn’s wealth by $7.3 billion.
Bloomberg estimates Icahn’s net worth at $14.6 billion, after accounting for his margin debt.
The stock of Icahn Enterprises lost 19.3% on May 3, and has lost 35.4% between May 1 and May 3. There are no indications in Icahn Enterprises’ securities filings of when Icahn might need to put up more collateral to back his margin loans.
