Hindenburg Research said Carl Icahn takes money from new investors “to pay dividends to old investors.”
Iconic activist investor Carl Icahn was himself hit with a challenge on Tuesday from a prominent short-seller, who claimed the billionaire’s conglomerate is significantly overvalued, causing shares of a company he owns to plummet.
Shares of Icahn Enterprises fell 20 percent to a three-year low in their busiest day ever after Hindenburg Research said it shorted the stock, the company was overvalued and that Icahn had a “Ponzi-like economic structure.”
“Basically, Icahn has used money from new investors to pay dividends to old investors,” Hindenburg said, claiming that Icahn sells partnership units to new investors to support dividend payments to existing investors.
Reuters was unable to independently verify Hindenburg’s claims in its report.
The Sunny Isles Beach, Florida-based company is the latest high-profile target of Hindenburg Research, which went after India’s Adani Group earlier this year, causing a loss in that company’s stock.
Icahn Enterprises is one of the most successful activist investment firms and the primary investment vehicle for Icahn, which is known for its face-offs with several high-profile firms. He did not respond to a request for comment.
Shares fell $12.03, or 24 percent, to $38.39 on more than 10 million shares traded, the busiest day in history for the company, according to Refinitiv Eikon data.
‘Too much influence’
Founded in 2017, Hindenburg said IEP’s units are overvalued by more than 75 percent and that “IEP trades at a 218 percent premium to last reported net asset value (NAV), far higher than any of its peers.”
The short-seller also took aim at the close relationship between investment bank Jefferies and Icahn. Hindenburg noted that Jefferies’ research assumed Icahn’s dividends would be paid in perpetuity even in the worst-case scenario, that it acted as a bookrunner for unit sales, and that CEO Richard Handler has a close relationship with Icahn.
The bank did not immediately respond to a request for comment from Reuters.
Earlier this year, Hindenburg’s report on India’s Adani Group pulled more than $100 billion in value from the conglomerate’s stock, and last month the short-seller targeted Jack Dorsey-led Block Inc.
Hindenburg said peers like Dan Loeb’s Third Point and Bill Ackman’s Pershing Square are trading at a discount to their respective NAVs. The NAV is an important measure of a fund’s performance and measures the market value of the securities held by the fund.
“We think Icahn, a Wall Street legend, made a classic mistake of exerting too much influence in the face of sustained losses: a combination that rarely ends well,” the short-seller said.
Icahn, 87, has pushed for change at a number of companies over the years, including Herbalife. In August, fast food giant McDonald’s Corp. changed its board and replaced an executive who had been targeted by Icahn.
Most recently, Icahn was involved in a proxy battle with Illumina Inc to push the US life sciences company to undo its acquisition of Grail in 2021.
Short sellers typically sell borrowed securities and aim to buy them back at a lower price.