Carl Icahn’s Icahn Enterprises (IEP) stock slumped on Thursday as Hindenburg Research announced a new short position in Icahn Enterprises.
In a short report released Thursday, Hindenburg disclosed it initiated a short position in IEP bonds.
Hindenburg’s announcement comes a day after Icahn Enterprises reported first-quarter earnings results. Icahn Enterprises also disclosed that a federal probe into its business began the day after Hindenburg’s first short report. Icahn Enterprises is cooperating with federal prosecutors, per the company’s release.
Icahn himself responded to Hindenburg via a statement on Wednesday.
“Hindenburg Research, founded by Nathan Anderson, would be more aptly named Blitzkrieg Research given its tactics of wantonly destroying property and harming innocent civilians,” Icahn said in the statement. “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.”
But Hindenburg clapped back on Thursday, specifically targeting Icahn’s personal loans taken out using IEP shares as collateral.
Icahn and “affiliates” own approximately 84% of Icahn Enterprises, according to a release. More than half of Icahn’s personal shares have been posted as collateral for loans, according to an SEC filing highlighted by Hindenburg research.
“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,” Hindenburg wrote.
So, the decline in stock price has sent Icahn’s personal net worth tumbling, and it could also put pressure on his loans as well.
“A prolonged decline in the market price of the depositary units could increase the likelihood of a foreclosure or forced sale of the pledged depositary units,” the SEC filing states.
Patrick Gadson, co-head of shareholder activism at Vinson & Elkins, said there are ways Icahn could fight back at Hindenburg.
Given the decline in share price since the first short report, the stock could be seen as undervalued if Hindenburg’s accusations aren’t true. Icahn Enterprises could repurchase shares of the stock at the perceived low price, which would reward shareholders, Gadson said.
In other scenarios, a third party could come in to scoop shares at a perceived discount as well, sending IEP shares higher and potentially clearing out the shorts. Icahn has played that role himself in the past, famously buying Herbalife shares in opposition to a short position from Bill Ackman.
“Anyone who says they can stare into a crystal ball and predict accurately what’s going on inside IEP and the decision making among management is lying. The only thing we can say is, do they have options to make things difficult for the shorts? Yes. Have they used all those options? No,” Gadson told Yahoo Finance.
Josh is a reporter for Yahoo Finance.