SEC Charges Carl Icahn for Failing to Disclose Stock Pledges

SEC Charges Carl Icahn Over Stock Pledges

The renowned activist investor, Carl C. Icahn, has recently come under scrutiny by the Securities and Exchange Commission (SEC), which has charged him with failing to disclose significant financial maneuvers involving his personal stock holdings. Specifically, the SEC alleges that Icahn did not reveal that he had pledged a substantial portion of his own shares as collateral for margin loans amounting to billions of dollars.

On Monday, the SEC made the charges public alongside a settlement agreement in which Icahn will pay a fine of $2 million. While it is permissible for investors to use their stock holdings as collateral for loans, this practice can elevate the risks faced by other shareholders in the affected companies. For instance, if an investor defaults on a loan, the lender may liquidate the shares, potentially driving down the stock’s value.

The SEC detailed that Icahn had pledged over half of the shares he owns in his company, Icahn Enterprises, as collateral, yet he failed to disclose these pledges for several years. It was only in February 2022 that he publicly acknowledged them, despite having begun this practice as early as late 2018.

At 88 years old, Icahn maintains ownership of approximately 86 percent of Icahn Enterprises. He is widely recognized as one of the pioneering figures in the realm of corporate raiding and activist investing, known for acquiring stakes in companies and advocating for management changes. Besides engaging in activist investing, Icahn Enterprises also manages an extensive portfolio that includes stocks, real estate, and various other investments.

The SEC’s charges represent another setback for Icahn, whose business practices have faced intensified scrutiny over the past year. This increased attention follows the targeting of his company by Hindenburg Research, a well-known short-selling firm recognized for its previous campaigns against prominent figures such as Indian tycoon Gautam Adani and Jack Dorsey, co-founder of Twitter.

In the wake of these revelations, shares of Icahn Enterprises experienced a decline of more than 1 percent during Monday morning trading. The company’s stock has plummeted by over 60 percent since Hindenburg released a critical report last year, which accused Icahn Enterprises of operating “Ponzi-like economic structures.” Short sellers stand to gain from declining stock prices, and Hindenburg alleged that Icahn Enterprises was distributing dividends that it could not sustain. In response to these financial pressures, Icahn Enterprises made the decision to cut its dividend in half in August 2023.