The SEC is Now Charging Icahn For Hiding Billions

August 19, 2024

The SEC is now charging Icahn for hiding billions of dollars worth of personal margin loans pledged against the value of his company.

The U.S. Securities and Exchange Commission on Monday said it fined billionaire activist investor Carl Icahn and his company $2 million.

Carl Icahn, known for his aggressive corporate takeovers and later as an activist investor, reached a settlement with the Securities and Exchange Commission (SEC) without admitting fault.

The settlement involved Icahn and his company, Icahn Enterprises (IEP), agreeing to pay fines of $500,000 and $1.5 million respectively.

The SEC alleged that Icahn had pledged a significant portion of his IEP shares, ranging from 51% to 82% of outstanding shares, as collateral for billions of dollars in margin loans.

This was done without informing shareholders or the SEC, a violation of disclosure requirements.

The news of the settlement led to a 6% drop in IEP shares by midday on Monday.

The SEC’s consent order revealed that Icahn’s total personal borrowing reached as high as $5 billion.

As the controlling shareholder of IEP, Icahn was obligated to file Schedule 13D reports, which outline the intentions of controlling shareholders and disclose any encumbrances on their stake, such as margin loans.

Icahn’s failure to do so constituted a breach of these regulations.

“The federal securities laws imposed independent disclosure obligations on both Icahn and IEP,” said Osman Nawaz, a senior SEC official.

“These disclosures would have revealed that Icahn pledged over half of IEP’s outstanding shares at any given time.”

Icahn’s extensive margin borrowing came to light in a May 2023 report by short seller Hindenburg Research.

The report criticized Icahn Enterprises (IEP), alleging that the company was misrepresenting the value of its holdings, among other issues.

This report put significant pressure on IEP’s stock price, per CNBC.

Two months after the Hindenburg report, in July, Icahn amended and disclosed his margin borrowings, according to the SEC’s consent order.

In a statement to CNBC, Icahn denied the allegations of misrepresenting IEP’s net asset value (NAV) or engaging in a “Ponzi-like” structure.

He expressed relief at settling the matter and stated that IEP would continue to operate in the best interests of its unit holders.

However, Hindenburg Research maintained its stance on X (formerly Twitter), reiterating its short position on IEP and claiming that the company continues to operate in a “Ponzi-like” manner.

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Also Read: Exposures At Hedge Funds Now Surge To Over $28 Trillion

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An investment banking company is now under investigation for illegal trading according to an SEC and Bloomberg report.

B. Riley Financial Inc. is facing an investigation, meanwhile shares have lost more than half their value amidst the probe.

The agency is assessing whether the investment bank adequately disclosed the risks associated with some of its assets to investors.

The SEC inquiry also extends to examining the interactions between B. Riley’s founder, Bryant Riley, and the former CEO of Franchise Group Inc. (FRG), Brian Kahn.

FRG is one of B. Riley’s larger investment holdings.

In addition, the SEC probe is looking into possible improper trading by other insiders at B. Riley.

Regulators have also asked about the movement of receivables due from cash-strapped retail customers, whose repayment might be doubtful.

The SEC’s civil probes, involving lawyers in Los Angeles, Washington and Philadelphia, are running concurrently with a federal criminal inquiry in New Jersey.

This criminal investigation is focused on the 2020 collapse of an investment fund, Prophecy Asset Management, where Brian Kahn handled most of the fund’s assets.

The news of the SEC investigation has had a significant impact on B. Riley’s stock price, with shares dropping over 54% to $7.73 per share during the trading session.

This multi-faceted regulatory scrutiny of B. Riley underscores concerns about the firm’s risk management practices, disclosures, and potential misconduct involving its leadership and investments.

Prophecy investors who lost money have questioned in a lawsuit whether Kahn improperly used Prophecy proceeds to acquire control of FRG for himself. A co-founder of that fund pleaded guilty in November in a $294 million fraud case and is cooperating with prosecutors, who tagged Kahn as an unindicted co-conspirator, Bloomberg previously reported.

Bryant Riley told investors in a Monday conference call that he and the company received subpoenas in July from the SEC focused mainly on B. Riley’s dealings with Kahn.

“We are responding to the subpoenas and are fully cooperating with the SEC,” Bryant Riley said.

“We are confident that the SEC will reach the same conclusion that our own internal investigation, with the assistance of two separate law firms, did – that we had no involvement with or knowledge of any alleged misconduct concerning Brian Kahn or his affiliates.”

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Also Read: The US Treasury Direct is Now Freezing Customer Accounts

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