Since May 2, when short seller Hindenburg raised concerns about billionaire Icahn’s affairs, it has lost nearly 40 percent of its value.
Billionaire Carl Icahn’s holding company said Wednesday it had been contacted by US prosecutors and posted a surprise quarterly loss, sending its shares down 15 percent in the latest blow to the activist investor’s efforts to defend his empire against a surge of short sales days. after a report by Hindenburg Research.
It was not yet clear whether the interest of US federal prosecutors was related to Hindenburg’s claims that Icahn Enterprises LP (IEP) was driving up the value of its assets and running a “Ponzi-esque” scheme to pay its dividends.
Still, it was a setback for Icahn, a pioneer of shareholder activism who is known for patronizing companies for their governance and transparency, but hasn’t been so critical himself.
Since May 2, when Hindenburg released his critical report, IEP shares have lost nearly 40 percent of their value — nearly $7 billion — and the net worth of Icahn, who owns 85 percent of IEP, has shrunk by a similar amount to $10 billion. dollars. .
IEP said Wednesday it had received inquiries from prosecutors in the Southern District of New York “seeking information about the company and certain of its affiliates in areas such as corporate governance, capitalization, securities offerings, dividends, valuation, marketing materials, due diligence and other materials”.
The company said it was cooperating with the request and that the U.S. Attorney’s Office has not filed any claims or charges against the company or Icahn.
A spokesman for the US Attorney’s Office declined to comment.
‘Self-service’
Icahn has called Hindeburg’s report “self-interest” and he reiterated his defense of IEP on Wednesday. “Hindenburg Research, founded by Nathan Anderson, should be more properly called Blitzkrieg Research given its tactics of deliberately destroying property and harming innocent civilians,” he said in a statement.
Icahn has tried to reassure investors that IEP’s dividend is safe after Hindenburg claimed it is unsustainable because it relies on Icahn stocking its own dividend and that IEP regularly raises money by selling more shares.
While the company said it would maintain its dividend for the first quarter at $2 per unit, the first-quarter loss and inquiries from prosecutors raised new questions from some investors and legal experts about the company’s ability to sell shares later.
“Managers at brokerage firms take a conservative stance when allegations of financial improprieties are made about an issuer or when agencies get involved, even in the early stages of an investigation,” said Clark Hill, securities attorney Randy Katz.
IEP posted a net loss of $270 million, with the bankruptcy of its auto parts distributor IEH Auto Parts Holding resulting in a one-time, non-cash charge of $226 million.
Excluding one-time items, Icahn Enterprises reported a loss of 11 cents per share, missing the average analyst estimate of a profit of 19 cents, according to Refinitiv data.
Revenue for the quarter ended March 31 was $2.6 billion compared to $4.1 billion a year earlier.
IEP has $1.9 billion in cash and $4 billion in additional liquidity, Icahn said in a statement. IEP added that its valuation methods were industry standard and cited six examples of its assets whose sales prices were well above stated pre-sale markups.