TLDR
- Carl Icahn and Icahn Enterprises (IEP) were fined by the SEC for failing to disclose billions in personal loans backed by IEP stock.
- Icahn pledged 51% to 82% of IEP’s outstanding shares as collateral for margin loans worth up to $5 billion.
- The SEC charged that Icahn failed to make required Schedule 13D filings to disclose the loans and collateral.
- Icahn and IEP agreed to pay $500,000 and $1.5 million in fines respectively, without admitting wrongdoing.
- The issue came to light after a May 2023 report by short-seller Hindenburg Research.
The U.S. Securities and Exchange Commission (SEC) announced on Monday, August 19, 2024, that it has fined billionaire investor Carl Icahn and his company Icahn Enterprises (IEP) for failing to disclose billions of dollars in personal loans backed by IEP stock.
The fines total $2 million, with Icahn personally paying $500,000 and IEP paying $1.5 million.
Today we charged Carl Icahn and Icahn Enterprises L.P. for failing to disclose pledges of company’s securities as collateral for billions in personal loans. https://t.co/cXgn0YYG1K
— U.S. Securities and Exchange Commission (@SECGov) August 19, 2024
According to the SEC, Icahn pledged between 51% and 82% of IEP’s outstanding shares as collateral for personal margin loans worth up to $5 billion. This practice dated back to at least December 31, 2018, and possibly as far back as 2005. The SEC stated that as the controlling shareholder of IEP, Icahn was required to file Schedule 13D amendments disclosing these loans and the associated collateral. However, he failed to do so until July 2023.
The issue came to light following a May 2023 report by short-seller Hindenburg Research. The report highlighted Icahn’s margin borrowing and raised questions about IEP’s valuation methods and dividend payments. After the report’s publication, IEP’s stock price fell significantly, reportedly reducing Icahn’s net worth by $2.9 billion.
Osman Nawaz, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, explained the importance of the required disclosures:
“These disclosures would have revealed that Icahn pledged over half of IEP’s outstanding shares at any given time. Due to both disclosure failures, existing and prospective investors were deprived of required information.”
In response to the SEC charges, Icahn and IEP settled without admitting or denying wrongdoing. Icahn stated,
“The government investigation that followed has resulted in this settlement which makes no claim IEP or I inflated NAV or engaged in a ‘Ponzi-like’ structure. We are glad to put this matter behind us and will continue to focus on operating the business for the benefit of unit holders.”
Jonathan Streeter of Dechert LLP, representing IEP as outside counsel, noted that the government found no fraud, inflated valuations, or impropriety related to the company’s dividends.
However, Hindenburg Research maintains its position, stating on social media that IEP is “still operating a ponzi-like structure” and reiterating that it remains short on the stock.
The SEC’s action against Icahn comes at a time when the 88-year-old investor has been linked to other notable business activities. In May 2024, reports circulated that Icahn had rebuilt a stake in Caesars Entertainment.
SEC filings through the end of June show that he owns approximately 2.44 million shares, or about 1.1% of the casino operator.
This recent investment in Caesars follows Icahn’s previous involvement with the company. From 2018 to 2020, Icahn built a 25% stake in Caesars, secured three board seats, and pushed for the company’s sale. Caesars was ultimately sold to Eldorado Resorts in a $17.3 billion deal that closed in July 2020. After the sale, Icahn sold off his holdings.
In the wake of the SEC announcement, IEP’s stock price fell 6% by midday on August 19. The company recently reported a 1.7% year-on-year decrease in overall revenue for Q2, totaling $2.83 billion. However, its digital segment showed positive growth, with revenue increasing 27.8% to $276 million.
As of the latest reports, Carl Icahn owns 2.44 million shares of Caesars Entertainment, representing a 1.1% stake in the company.
