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The Securities and Exchange Commission (SEC) has imposed a multimillion-dollar fine on Carl Icahn, a famed activist investor, and his company, Icahn Enterprises LP (IEP), for not disclosing Icahn’s billions in personal margin loans. These loans were secured using Icahn’s stake in IEP as collateral.

The SEC wrote in a press release that Icahn and IEP failed to “disclose information relating to Icahn’s pledges of IEP securities as collateral to secure personal margin loans worth billions of dollars under agreements with various lenders.” 

The SEC said Icahn, who is IEP’s controlling shareholder and Chairman of the board of directors of IEP’s general partner, pledged anywhere from 51% to 82% of IEP shares “as collateral to secure personal margin loans worth billions of dollars under agreements with various lenders.” The failure to disclose that fact to shareholders or federal regulators resulted in IEP and Icahn agreeing to pay $1.5 million and $500,000 in civil penalties. 

The SEC continued:

Notwithstanding Icahn’s various margin loan agreements and amendments, IEP failed to disclose Icahn’s pledges of IEP securities as required in its Form 10K until February 25, 2022. Icahn also failed to file amendments to Schedule 13D describing his personal margin loan agreements and amendments, which dated back to at least 2005, and failed to attach required guaranty agreements. Icahn’s failure to file the required amendments to Schedule 13D persisted until at least July 9, 2023. 

Osman Nawaz, a senior SEC official, wrote in a statement, “The federal securities laws imposed independent disclosure obligations on both Icahn and IEP,” adding, “These disclosures would have revealed that Icahn pledged over half of IEP’s outstanding shares at any given time.” 

The investigation began shortly after short-seller Hindenburg Research released a short report on IEP in early May 2023. Shares of the company crashed in the days and weeks following the report.

• Hindenburg Unveils Short Position In Icahn Enterprises, Says Company “Inflated By 75%+”

• Icahn Sees $3.1 Billion In Wealth Evaporate After Hindenburg Research Report

• Hindenburg Raises “Critical New Questions” About Icahn’s Increasing Share Pledges In New Report

At the time, Hindenburg wrote that Icahn “has made a classic mistake of taking on too much leverage in the face of sustained losses: a combination that rarely ends well.” The firm called IEP a “Ponzi-like structure.” 

The SEC said Icahn cooperated with investigators during the investigation. In a filing on Monday, IEP noted there was no  “substantive” communication with the US Attorney’s office since the initial inquiry in 2023. 

Following today’s announcement from the SEC, Hindenburg reiterated its short in IEP: 

Icahn rightly got charged by the SEC for failing to disclose details of his massive margin loan.

The company is still operating a ponzi-like structure, as we originally alleged. Icahn Enterprises lost almost $1 billion last quarter alone yet is paying out a distribution equivalent to an annualized ~47% of its net asset value (NAV).

The company currently trades at an ~88% premium to its reported NAV, even when ignoring its aggressive marks on its illiquid private investments.

Rather than blame us for his own investment failings, Icahn should put his money where his mouth is. Following our report, the company announced a $500 million buyback and has since bought back zero units. Instead the company has actually sold $99 million of units through an at-the-market offering in the past 2 quarters, continuing to dump overvalued shares on unsuspecting retail investors.

We remain short units of $IEP.

Icahn rightly got charged by the SEC for failing to disclose details of his massive margin loan.

The company is still operating a ponzi-like structure, as we originally alleged. Icahn Enterprises lost almost $1 billion last quarter alone yet is paying out a distribution…

— Hindenburg Research (@HindenburgRes) August 19, 2024

In markets, IEP fell 6% into the $15 handle in the US cash session, hovering at lows not seen in decades. Shares are down nearly 76.5% since peaking around the $69 handle in the first quarter of 2021.

Notice the big surge in bearish IEP bets following Hindenburg’s report last May. The latest data from Bloomberg shows 15% of the float is short, or about 7.335 million shares. 

Icahn told Bloomberg, “We are glad to put this matter behind us and will continue to focus on operating the business for the benefit of unit holders.” 

Bears, like Hindenburg, still believe there is more downside.