Corporate activist Carl Icahn’s fortune tumbled more than $10 billion on Tuesday after short-seller Hindenburg Research accused him of using a “ponzi-like” economic structure at his investment company.
Icahn Enterprises, his publicly traded limited partnership that operates as a holding company, fell by 20 per cent — the most on record — erasing $3.1 billion from his fortune.
Hindenburg also detailed Mr Icahn’s margin loan collateralised by his stake in the company, which was not previously accounted for by the Bloomberg Billionaires Index. That lopped off another $7.3 billion from the net worth calculation.
All told, Mr Icahn’s fortune sank by an unprecedented 41 per cent to $14.6 billion, according to the wealth index, dropping him from the world’s 58th-richest person to 119th.
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Mr Icahn, 87, is the latest billionaire to become the target of Hindenburg this year after the New York-based short-seller went after India’s Gautam Adani and Block's Jack Dorsey.
Hindenburg’s attacks on the companies of Mr Adani and Mr Dorsey caused drops in their fortunes this year of $58 billion and $500 million, respectively.
The activist investor owns more than 85 per cent of Icahn Enterprises’ units through various entities, making up the bulk of his fortune.
Hindenburg said the company, with investments in funds managed by Mr Icahn and controlling stakes in businesses in sectors such as energy, automotive and food, was overleveraged and traded at an extreme premium to its net asset value.
Hindenburg also questioned how the company valued some of its investments.
Mr Icahn called the report “self-serving” and “intended solely to generate profits on Hindenburg’s short position”.
He has boosted his holding in Icahn Enterprises by taking dividends in the form of additional units. Before Tuesday’s decline, his stake was worth $15.7 billion, compared with $8.4 billion in 2017, even as the value of its shares declined by 4.9 per cent.
Other unit holders received their dividends in cash, making the company attractive to retail investors, Hindenburg said.
That was only possible because of Mr Icahn’s decision to take his payment in units, since the company was consistently operating with negative cash flows, the short-seller said.
Mr Icahn began reporting a margin loan collateralised by his stake in the company in 2021, at a time when he had about 65 per cent of his shares pledged.
He boosted the number last year and, as of February, had more than 181 million shares worth $9.2 billion backing the loan, according to the company’s 2022 annual report.
Margin loans involve lending that is collateralised by the value of the underlying shares. If the value of the stock declines, lenders can request additional collateral or for the loan to be repaid, and have the ability to seize and sell the shares if a borrower fails to do so.
Hindenburg criticised Mr Icahn for failing to disclose how much he had borrowed, the interest rate or the loan-to-value maintenance ratio associated with the margin loan.
In its annual report, Icahn Enterprises said: “Mr Icahn has advised that he and his affiliates have sufficient additional assets to satisfy any obligations pursuant to these loans without recourse to the depository units, he has no need or intention to allow foreclosure on such collateral, and that he is current on all principal and interest payments with respect to the loans.”
Mr Icahn’s second-largest asset is his stake in his investment funds, which he uses to make activist bets. Icahn Enterprises, Mr Icahn and his son, Brett, are the only investors in the funds.
At the end of last year, Mr Icahn had $4.9 billion invested. Hindenburg calculated that the fund could be down about 17 per cent this year, based on an estimate of the performance of its long and short positions.
Our legal columnist
Name: Yousef Al Bahar
Advocate at Al Bahar & Associate Advocates and Legal Consultants, established in 1994
Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers
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AI traffic lights to ease congestion at seven points to Sheikh Zayed bin Sultan Street
The seven points are:
Shakhbout bin Sultan Street
Dhafeer Street
Hadbat Al Ghubainah Street (outbound)
Salama bint Butti Street
Al Dhafra Street
Rabdan Street
Umm Yifina Street exit (inbound)
HIJRA
Starring: Lamar Faden, Khairiah Nathmy, Nawaf Al-Dhufairy
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Rating: 3/5
Tax authority targets shisha levy evasion
The Federal Tax Authority will track shisha imports with electronic markers to protect customers and ensure levies have been paid.
Khalid Ali Al Bustani, director of the tax authority, on Sunday said the move is to "prevent tax evasion and support the authority’s tax collection efforts".
The scheme’s first phase, which came into effect on 1st January, 2019, covers all types of imported and domestically produced and distributed cigarettes. As of May 1, importing any type of cigarettes without the digital marks will be prohibited.
He said the latest phase will see imported and locally produced shisha tobacco tracked by the final quarter of this year.
"The FTA also maintains ongoing communication with concerned companies, to help them adapt their systems to meet our requirements and coordinate between all parties involved," he said.
As with cigarettes, shisha was hit with a 100 per cent tax in October 2017, though manufacturers and cafes absorbed some of the costs to prevent prices doubling.
Milestones on the road to union
1970
October 26: Bahrain withdraws from a proposal to create a federation of nine with the seven Trucial States and Qatar.
December: Ahmed Al Suwaidi visits New York to discuss potential UN membership.
1971
March 1: Alex Douglas Hume, Conservative foreign secretary confirms that Britain will leave the Gulf and “strongly supports” the creation of a Union of Arab Emirates.
July 12: Historic meeting at which Sheikh Zayed and Sheikh Rashid make a binding agreement to create what will become the UAE.
July 18: It is announced that the UAE will be formed from six emirates, with a proposed constitution signed. RAK is not yet part of the agreement.
August 6: The fifth anniversary of Sheikh Zayed becoming Ruler of Abu Dhabi, with official celebrations deferred until later in the year.
August 15: Bahrain becomes independent.
September 3: Qatar becomes independent.
November 23-25: Meeting with Sheikh Zayed and Sheikh Rashid and senior British officials to fix December 2 as date of creation of the UAE.
November 29: At 5.30pm Iranian forces seize the Greater and Lesser Tunbs by force.
November 30: Despite a power sharing agreement, Tehran takes full control of Abu Musa.
November 31: UK officials visit all six participating Emirates to formally end the Trucial States treaties
December 2: 11am, Dubai. New Supreme Council formally elects Sheikh Zayed as President. Treaty of Friendship signed with the UK. 11.30am. Flag raising ceremony at Union House and Al Manhal Palace in Abu Dhabi witnessed by Sheikh Khalifa, then Crown Prince of Abu Dhabi.
December 6: Arab League formally admits the UAE. The first British Ambassador presents his credentials to Sheikh Zayed.
December 9: UAE joins the United Nations.
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COMPANY PROFILE
Name: Akeed
Based: Muscat
Launch year: 2018
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The five pillars of Islam
Killing of Qassem Suleimani
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UAE currency: the story behind the money in your pockets
How to watch Ireland v Pakistan in UAE
When: The one-off Test starts on Friday, May 11
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From Zero
Artist: Linkin Park
Label: Warner Records
Number of tracks: 11
Rating: 4/5
The Cairo Statement
1: Commit to countering all types of terrorism and extremism in all their manifestations
2: Denounce violence and the rhetoric of hatred
3: Adhere to the full compliance with the Riyadh accord of 2014 and the subsequent meeting and executive procedures approved in 2014 by the GCC
4: Comply with all recommendations of the Summit between the US and Muslim countries held in May 2017 in Saudi Arabia.
5: Refrain from interfering in the internal affairs of countries and of supporting rogue entities.
6: Carry out the responsibility of all the countries with the international community to counter all manifestations of extremism and terrorism that threaten international peace and security
The stats
Ship name: MSC Bellissima
Ship class: Meraviglia Class
Delivery date: February 27, 2019
Gross tonnage: 171,598 GT
Passenger capacity: 5,686
Crew members: 1,536
Number of cabins: 2,217
Length: 315.3 metres
Maximum speed: 22.7 knots (42kph)
