Shares of billionaire investor Carl Icahn’s Enterprises dropped 6 per cent on Monday after the Securities and Exchange Commission (SEC) brought the company and its founder up on charges.
The charges involved the company failing to disclose information relating to the founder’s pledges of IEP securities as collateral for personal margin loans in the billions of dollars under agreements with various lenders.
The regulator stated that IEP and Icahn agreed to pay USD$1.5 million and USD$500,000 in civil penalties, respectively, to settle the charges. Since at least December 31, 2018, Icahn has pledged approximately 51 per cent to 82 per cent of the firm’s outstanding securities as collateral to secure personal margin loans worth billions of dollars under agreements with various lenders.
“Notwithstanding Icahn’s various margin loan agreements and amendments, IEP failed to disclose Icahn’s pledges of IEP securities as required in its Form 10K until February 25, 2022,” the SEC said.
The SEC also indicated that Icahn failed to file amendments to Schedule 13D that described his personal margin loan agreements and amendments, some of which dated back to at least 2005.
He also neglected to attach the required guaranty agreements, according to the regulator. The activist investor continued failing to file the necessary amendments to Schedule 13D until at least July 9, 2023.
Osman Nawaz, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit (CFIU), said that the disclosures would have revealed Icahn’s pledge of over half of IEP’s outstanding shares at any given time.
“Due to both disclosure failures, existing and prospective investors were deprived of required information,” Nawaz said.
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Icahn’s dividend scheme ‘Ponzi-like’ says short-seller
An SEC order revealed that Icahn’s total outstanding principal amount of loans reached as much as USD$5 billion by the end of December 2022. In May 2023, short-seller Hindenburg Research reportedly highlighted Icahn’s margin borrowing.
Icahn Enterprises remains at odds with the short-seller, which accused Icahn last year of running a “Ponzi-like” scheme to pay dividends by overvaluing its holdings.
However, on July 5, 2024, Icahn filed an amendment to Schedule 13D and attached the Omnibus Guaranty Agreement. IEP and Icahn agreed to cease and desist from future violations and to pay the civil penalties without admitting or denying the findings.
The stock dropped as much as 14.3 per cent to USD$13.62, the lowest since November 2003, but pared losses to close down 11.5 per cent at USD$14.07, the weakest since February 2004.
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