The Securities and Exchange Commission (SEC) announced Monday that it charged Carl Icahn, a prominent investor, and his publicly traded company, Icahn Enterprises L.P. (IEP), for failing to disclose required information regarding Icahn’s pledging of IEP securities as collateral to secure personal margin loans.
The charges against Icahn, 88, and IEP stem from actions taken from Dec. 31, 2018, through the present day. Forbes describes Icahn as one of Wall Street’s most successful investors.
According to the SEC, Icahn, who serves as the chairman of the board of directors of IEP’s general partner and is the company’s controlling shareholder, pledged between 51 percent and 82 percent of IEP’s outstanding securities as collateral under various margin loan agreements.
Despite the substantial pledges, IEP did not disclose them in its required Form 10-K filings until Feb. 25, 2022. Additionally, the SEC alleged Icahn failed to file amendments to Schedule 13D, which should have described the personal margin loan agreements dating back to at least 2005.
“The federal securities laws imposed independent disclosure obligations on both Icahn and IEP. These disclosures would have revealed that Icahn pledged over half of IEP’s outstanding shares at any given time,” Osman Nawaz, chief of the SEC’s Complex Financial Instruments Unit, said in a press release. “Due to both disclosure failures, existing and prospective investors were deprived of required information.”
The SEC’s orders specifically charge IEP with violating Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-1, which mandates that companies file complete and accurate annual reports. Icahn was charged with violating certain beneficial ownership reporting provisions of the Exchange Act, particularly sections that require timely amendments to Schedule 13D when material changes occur.
“In 1995, 2003, and 2005, Icahn filed amendments to Schedule 13D that generally disclosed that Icahn and his affiliates pledged certain IEP depositary units as collateral for personal margin loans, but failed to disclose the amount of units pledged or describe the terms of any agreements,” the order said.
“Since 2005, Icahn entered into dozens of margin loan agreements and amendments with various lenders, including at least eleven during the Relevant Period, which resulted in him pledging additional amounts of IEP depositary units and/or his interests in the IEP Funds as collateral.”
Without admitting or denying the findings, IEP has agreed to pay a $1.5 million civil penalty, while Icahn will pay a separate $500,000 civil penalty, the orders said. Both Icahn and IEP also consented to cease and desist from future violations of the respective securities laws.
The SEC order adds that Icahn acquired control of IEP in 1990 and since then he has been the controlling shareholder of IEP. He currently resides in Sunny Isles Beach, Florida, and while the company is incorporated in Delaware, the principal place of business is also Florida.
Jonathan Streeter, outside counsel to IEP at Dechert LLP, said in an email to The Epoch Times that the government’s investigation began after a report from short-selling firm Hindenburg Research was released last year. Streeter said it included “false and totally irresponsible” allegations against IEP for inflating its net asset value and alleging it had “Ponzi-like” dividends.
Streeter said IEP and Icahn fully cooperated with the government during the investigation and the settlements announced this week are for “an unrelated disclosure violation on issues that were reviewed by outside advisors at the time in question.”
“On that, IEP corrected the disclosure violation in February 2022, more than a year before the Hindenburg report and the start of the government investigation,” Streeter added. “When IEP made that correction, its unit price barely moved and the market did not react.”
Icahn also pointed to the Hindenburg report in an emailed statement to The Epoch Times, adding the report was issued “to make money on its short position at the expense of ordinary investors.”
“The government investigation that followed has resulted in this settlement which makes no claim IEP or I inflated NAV or engaged in a ‘Ponzi-like’ structure,” Icahn added in the emailed statement. “We are glad to put this matter behind us and will continue to focus on operating the business for the benefit of unit holders.”
In response, Hindenburg Research said in a post on social media platform X that it stands by its allegations and that “Icahn rightly got charged by the SEC.”
