Key Takeaways:

  • The U.S. Securities and Exchange Commission (SEC) issued a press release on Monday charging billionaire investor Carl Icahn and his company Icahn Enterprises (IEP) with failing to disclose that Icahn had pledged company securities as collateral for personal loans.
  • Osman Nawaz, chief of the SEC Enforcement Division's Complex Financial Instruments Unit (CFIU), said in the press release that neither IEP nor Icahn filed the disclosures required by federal securities laws, which "would have revealed that Icahn had pledged more than half of IEP's outstanding shares at any given time."
  • According to the press release, publicly traded IEP (in which Icahn holds an 84% stake) agreed to pay $1.5 million to settle the civil charges, while Icahn himself agreed to pay $500,000.

Deep Dive:

According to the SEC's administrative order, from at least December 31, 2018, to the present, Icahn "pledged approximately 51% to 82% of IEP's outstanding securities as collateral for personal margin loan agreements with multiple lenders, valued in the billions of dollars."

The SEC's order also noted that IEP failed to disclose that Icahn — the company's founder, controlling shareholder, and chairman of the board, with a net worth of approximately $6 billion according to the Bloomberg Billionaires Index — had pledged company securities as collateral.

The civil penalties against Icahn and IEP come more than a year after the SEC first opened an investigation into the company. The probe stemmed from a May 2023 report by short-seller Hindenburg Research, which alleged the company had inflated asset valuations by as much as 75%.

The report stated: "In short, Icahn has been using money from new investors to pay dividends to old investors. This Ponzi-like economic structure can only be sustained as long as new money is willing to risk being the last one in."

In late May and June 2023, federal prosecutors, including the SEC, contacted IEP requesting information about securities offerings, dividends, marketing materials, and other records, according to a securities filing.

In a statement emailed to CFO Dive by IEP Enterprises, Carl Icahn said: "Hindenburg published a false report to profit from its short position at the expense of ordinary investors, and the subsequent government investigation led to this settlement, which does not allege that IEP or I inflated net asset value or engaged in a 'Ponzi-like' structure." He added that the report "caused harm to IEP and its investors."

Jonathan Streeter, IEP's outside counsel and a partner at Dechert LLP, said in a statement emailed to CFO Dive by IEP Enterprises that both Icahn and the company "fully cooperated" with the government investigation. Streeter also described the Hindenburg report as "self-serving," containing "false and wholly irresponsible allegations" that IEP inflated the value of its assets.

The report caused IEP's stock price and market capitalization to plummet, with shares falling more than 63% between early May and the end of May 2023. Meanwhile, IEP's market cap shrank from $18 billion to $7.01 billion, a reduction of more than half, according to the Associated Press at the time.

The SEC declined to comment beyond the press release.

The civil penalties come as the SEC, under Chair Gary Gensler, continues to pursue a more aggressive enforcement agenda, with particular focus on large corporations (IEP had approximately $17.9 billion in assets as of June 30, 2024, according to its latest financial report).

Just last week, the SEC fined 26 financial services firms a total of $360 million for failing to comply with federal record-keeping standards, CFO Dive reported. Both the SEC and the Public Company Accounting Oversight Board (PCAOB) are focused on improving accounting and audit quality, with Gensler calling on the PCAOB to strengthen oversight of audits of public companies.