Icahn Enterprises Settles SEC Charges Amid Disclosure Failures

Billionaire investor Carl Icahn and his firm, Icahn Enterprises LP (IEP), have settled charges from U.S. regulators. They agreed to pay $2 million in penalties after failing to disclose the pledging of most of the firm’s securities for billions in personal margin loans.

This settlement comes more than a year after short-seller Hindenburg Research accused Icahn of operating a “Ponzi-like” scheme to finance dividends by inflating the value of the firm’s holdings.

Allegations and Investigation:

Icahn acknowledged that Hindenburg’s allegations led to the SEC investigation, which uncovered failures to disclose margin loans but did not substantiate the more serious claims against him.

While Icahn considers the settlement a resolution to the accusations, he labeled Hindenburg’s report as “scurrilous and unsupported.” In contrast, Hindenburg Research has maintained its short position in IEP securities and expressed confidence in its claims.

Margin Loans and Pledged Securities:

Beginning in 2018, Icahn pledged 51% to 82% of IEP’s outstanding securities as collateral for securing billions of dollars in personal margin loans from various lenders. The SEC stated that this significant practice was not disclosed until February 2022.

Furthermore, as noted by Osman Nawaz, head of the SEC’s Complex Financial Instruments Unit, Icahn allegedly failed to amend securities filings concerning personal loans dating back to 2005, depriving investors of critical information about the pledged assets.

Response to the Allegations:

Although Icahn and IEP neither admitted nor denied the SEC’s allegations, Icahn claimed that Hindenburg’s report contained misinformation aimed at financial gain at the expense of regular investors.

He asserted that the settlement does not support any claims of inflated asset values or a “Ponzi-like” structure within IEP.

Current Status and Market Response:

Following the settlement announcement, IEP reported receiving “no substantive communication” from federal prosecutors in Manhattan since an initial inquiry in May 2023. The SEC also refrained from commenting further beyond the settlement.

Despite the scrutiny and charges, IEP’s stock price closed slightly higher, up a little more than 1%. However, Hindenburg’s statement indicated that their accusations remain unrefuted, asserting that IEP continues to show losses while trading at a heightened premium.