The Securities and Exchange Commission said on Monday that it filed charges against Carl C. Icahn and his publicly traded company, Icahn Enterprises L.P., and that both agreed to settle and pay penalties.
The charges stemmed from Icahn failing to disclose information related to the billionaire investor using Icahn Enterprises L.P, or IEP, stock as collateral for personal margin loans with various lenders that totaled billions of dollars.
From at least December 2018 through the time of the charges, Icahn, IEP’s controlling shareholder, general partner, and chairman of its board of directors, pledged approximately 51 to 82 percent of the company’s outstanding securities as collateral, according to the SEC. The regulator claimed that the company failed to disclose in its annual report that those shares were pledged as collateral until February 25, 2022, and that Icahn failed to file amendments to 13D reports, describing his personal margin loan agreements and amendments from at least 2005 until July 9 this summer.
“The federal securities laws imposed independent disclosure obligations on both Icahn and IEP. 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,” Osman Nawaz, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, said in a statement about the charges. Icahn Enterprises agreed to pay $1.5 million in civil penalties and Icahn agreed to pay $500,000.
Icahn and his company say the penalties are an expensive vindication. The SEC began an investigation into them following a 2023 Hindenburg Research letter accusing the company of using a “ponzi-like” structure to mask years of poor performance and overvaluation of its holdings. Icahn and the company fully cooperated with the SEC and the regulator ended up filing charges related to the improper disclosures, Icahn and IEP told Institutional Investor.
“In short, the government found absolutely no fraud and did not find any inflation of IEP’s NAV or impropriety in its dividends. Instead IEP is settling an unrelated disclosure violation on issues that were reviewed by outside advisors at the time in question. On that, IEP corrected the disclosure violation in February 2022, more than a year before the Hindenburg report and the start of the government investigation. When IEP made that correction, its unit price barely moved and the market did not react,” Jonathan Streeter, a partner at Dechert representing IEP, said.
Hindenburg responded publicly to the charges on X and said it maintains its opinion about the company’s operations and its short position.
Icahn claimed that Hindenburg knowingly issued a false report to make money on a short position, triggering the regulators investigation. That inquiry failed to result in charges related to any “Ponzi-like structure” that Hindenburg accused him of, the legendary activist investor said.
“Hindenburg’s modus operandi, which is to publish scurrilous and unsupported allegations, did damage to IEP and its investors,” Icahn said. “We are glad to put this matter behind us and will continue to focus on operating the business for the benefit of unit holders.”
