Carl Icahn targeted by short seller Hindenburg for 'Ponzi-like' structure

Carl Icahn’s Icahn Enterprises' (IEP) stock hit a 52-week low after the famed activist investor became the target of a short-seller report accusing him of what he often criticizes others for: mismanagement.

Shares of Icahn Enterprises fell as much as 25% percent in afternoon trading after Hindenburg Research published the report.

Hindenburg highlighted IEP’s 15.8% dividend yield, which it said is the largest of any U.S. large cap name. Hindenburg argues that achieving that yield isn’t being done through legal means.

“Icahn has been using money taken in from new investors to pay out dividends to old investors,” Hindenburg wrote in its research note. “Such Ponzi-like economic structures are sustainable only to the extent that new money is willing to risk being the last one 'holding the bag.'"

The report also said that “we think Icahn, a legend of Wall Street, has made a classic mistake of taking on too much leverage in the face of sustained losses: a combination that rarely ends well."

In a statement on Wednesday, Icahn Enterprises said it was operating from "a position of strength," with about $2 billion in cash and cash equivalents on its balance sheet as of March 31.

"We believe the self-serving short seller report published by Hindenburg Research today was intended solely to generate profits on Hindenburg's short position at the expense of IEP's long-term unit-holders. Icahn said in the statement. "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."

Shares were down more than 18% Wednesday. The company is expected to report first quarter earnings on Friday followed by a conference call at 10 a.m. ET.

Icahn Enterprises is a holding company operated by Icahn, who along with his "affiliates" owns 85% of Icahn Enterprises, according to a 10-K filing at the end of 2022. Known as the "Corporate Raider," Icahn built allure around himself as an activist investor, buying up stock in companies and angling for change. Icahn’s other recent activist attempts include McDonald’s, Kroger and Illumina.

That has entailed spats with some high-profile names, from prominent Silicon Valley entrepreneur Marc Andreessen to investor Bill Ackman.

Ackman, who Icahn once jousted with on live television, clapped back at Icahn via Twitter on Tuesday.

There is a karmic quality to this short report that reinforces the notion of a circle of life and death. As such, it is a must read. https://t.co/WtkGPEZHvP

— Bill Ackman (@BillAckman) May 2, 2023

For its part, Nathan Anderson-led Hindenburg Research has also been seen as a leader in the short-selling space, often calling management decisions into question. In 2021, Hindenburg called out Nikola for defrauding investors which eventually led to federal charges.

Since, Hindenburg has targeted other companies for fraudulent activities such as Block (SQ).

Josh is a reporter for Yahoo Finance.

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