Hindenburg Raises "Critical New Questions" About Icahn's Increasing Share Pledges In New Report

The next chapter of the Hindenburg Research vs. Carl Icahn saga looks like it's beginning. Both firms have dug their heels in, with Icahn Enterprises issuing a scathing response to the short seller alongside its earnings yesterday, and with Hindenburg Research offering up new questions this morning. 

This morning Hindenburg released a follow-up to its original report called "Icahn’s Latest Disclosures Raise Critical New Questions About Margin Loans, Continued Portfolio Losses". In the piece, the short seller points out that, per IEP's latest 10-Q, Carl Icahn's pledged shares have increased: 

In its newest filings, IEP disclosed that as of May 8, 2023 Icahn had increased his pledge by about 11.7% from prior levels, to 202.6 million IEP units, valued at $6.5 billion as of yesterday’s closing price. No further detail was provided.

The new metrics represent a significant increase in pledging activity from year-end 2022, when Icahn had pledged 181.4 million IEP units, which were worth over $9 billion at the time.

The short seller also notes that Icahn added $3.4 billion in cash to his investment funds since 2014 and asks the question: "Where Did the Money Come From?"

The short seller writes: "We strongly suspect—based on our analysis that we had not previously published—that Carl Icahn has borrowed billions, and reinvested some, or all the proceeds, into his own investment funds. These funds subsequently generated significant losses, which could pose an overleveraging risk for both Carl Icahn himself, and IEP unitholders."

The short seller also wrote about continued losses in Icahn's portfolio and disclosed that, in addition to remaining short IEP, it was now also short IEP bonds. 

In a detailed response out yesterday, Carl Icahn unloaded on the short seller, stating: "Hindenburg Research, founded by Nathan Anderson, would be more aptly named Blitzkrieg Research given its tactics of wantonly destroying property and harming innocent civilians. Mr. Anderson's modus operandi is to launch disinformation campaigns to distort companies' images, damage their reputations and bleed the hard-earned savings of individual investors. But, unlike many of its victims, we will not stand by idly. We intend to take all appropriate steps to protect our unitholders and fight back."

It continued: "We expect that, over time, IEP's performance will speak for itself. We have a strong balance sheet, with $1.9 billion of cash and $4 billion of additional liquidity, and stand ready to take advantage of all opportunities. As we consider recent events, we are left asking why Mr. Anderson issued this inflammatory report, doing great harm to retail investors. He has admitted to shorting stock before issuing his report, believing that the stock price would temporarily decline. Was that his only goal? Whatever the motive, IEP intends to vigorously defend itself and its unitholders."

“The good news for IEP’s investors is that we have Carl, the liquidity, the strategy and the know-how to fight back," the company said. 

IEP shares fell yesterday after the company reported earnings that missed expectations, but the company also authorized a $500 million buyback. The Wall Street Journal also reported yesterday that Icahn was under federal investigation following Hindenburg's research. 

Recall, on May 2nd, Hindenburg accused Icahn of "throwing stones" from his own glass house, claiming that shares of IEP were inflated by more than 75% and, while referring to Icahn as a "legend", said he "has made a classic mistake of taking on too much leverage in the face of sustained losses: a combination that rarely ends well."

“Confidence games never last forever. We expect Icahn Enterprises will be no different,” the short seller concluded on May 2. 

Since then, IEP shares are down almost 40%, but Icahn has committed to keeping the dividend in place and fighting back on behalf of his shareholders.