Carl Icahn’s Fortune Drops $10 Billion in Hindenburg Short Seller Report

(Bloomberg) — Institutional operative Carl Icahn’s fortune plunged by more than $10 billion on Tuesday after short sellers Hindenburg Research accused him of using a “Ponzi-like” economic structure at his investment firm.

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Icahn Enterprises LP, his publicly traded limited partnership that acts as a holding company, fell 20% — the most on record — wiping out $3.1 billion from his fortune. Hindenburg also detailed a margin loan to the investor against his stake in the company, which was not previously calculated by the Bloomberg Billionaires Index. This cut another $7.3 billion from the net worth account.

Finally, Icahn’s wealth fell by an unprecedented 41% to $14.6 billion, according to the Wealth Index, dropping him from the 58th richest person in the world to the 119th.

Icahn, 87, is the latest billionaire to be targeted by the Hindenburg this year after the New York-based short-seller went after India’s Gautam Adani and The Block’s Jack Dorsey. He owns more than 85% of the units of Icahn Enterprises through various entities, making up the bulk of his wealth.

Read more: Icahn’s sink projects are just one of the many events for the Hindenburg

Hindenburg said the company, through its investments in funds managed by Icahn and controlling stakes in businesses in the energy, auto, food and other sectors, was over-leveraged and traded at a significant premium to its net asset value. Hindenburg also questioned how the company would value some of its investments.

In a statement, Icahn called the report “self-serving” and “intended solely to generate profits from the exposed Hindenburg position”.

Icahn strengthened its stake in Icahn Enterprises by taking profits in the form of additional units. Before Tuesday’s dip, his stake was worth $15.7 billion, compared to $8.4 billion in 2017, even as its share value fell 4.9%.

Other unitholders received their dividends in cash, Hindenburg said, making the company attractive to retail investors. The short seller said that was only possible because of Icahn’s decision to collect its payments in units, because the company was constantly operating with negative cash flows.

Icahn began reporting the margin loan accumulated through his stake in the company starting in 2021, at a time when he had about 65% of his shares pledged. It boosted the number last year, and as of February it had more than 181 million shares worth $9.2 billion backing the loan, according to the company’s 2022 annual report.

Margin loans involve lending secured by the value of the underlying shares. If the value of the stock falls, the lenders can call for collateral or repay the loan, and they have the power to forfeit and sell the shares if the borrower fails to do so.

Hindenburg criticized Icahn for failing to disclose the amount he borrowed or the interest rate or loan-to-value ratio associated with a margin loan.

In its annual report, Icahn Enterprises said “Mr. Icahn has advised that it and its subsidiaries possess sufficient additional assets to meet any obligations under these loans without recourse to depository units, have no need or intention to allow foreclosure on these collateral, and that it is trading on All principal and interest payments in respect of loans.”

Icahn’s second largest asset is his stake in his investment funds, which he uses to make active bets. The Icahn Companies, Carl Icahn and his son Brett are the sole investors in the funds.

At the end of last year, Icahn invested $4.9 billion. Hindenburg has estimated that the fund could drop about 17% this year, based on an estimate of the performance of its long and short positions.

The Hindenburg attacks on the companies of Adani and Dorsey caused their fortunes to drop by $58 billion and $500 million this year, respectively.

— with the help of Jack Wetzig.

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