Icahn Enterprises says class-action suit following report by short seller Hindenburg Research has been thrown out

By Ciara Linnane

Carl Icahn was taking somewhat of a victory lap on Monday and stock of his investing arm was up 10%

Activist shareholder and billionaire Carl Icahn was taking somewhat of a victory lap Monday, after a judge dismissed a proposed class-action lawsuit against his company, finding it did not make material misrepresentations or omissions as alleged in a report by short seller Hindenburg Research.

The report, published last May, alleged that Icahn's investing arm, Icahn Enterprises L.P. (IEP), had overstated the value of certain assets and was unable to afford its at-that-time quarterly dividend of $2 a share. It also revealed that Icahn himself had made billions of dollars worth of personal loans against shares, or units, that he owned in Icahn Enterprises.

"We are pleased that the spurious claims of various unscrupulous characters, working together in a coordinated and clandestine network, have been debunked," Icahn said in prepared remarks.

The company recently settled an investigation launched by the Securities and Exchange Commission based on claims made in the Hindenburg report. In that instance, the company and Icahn personally agreed to pay $2 million in civil penalties for failing to make required disclosures relating to the loans.

"We cooperated fully with the SEC and the SEC found no fraud, inflation of our net asset value or impropriety in our distributions, nor did it validate any of Hindenburg's other spurious claims. Instead, we settled a technical disclosure violation," Icahn said.

The Hindenburg report highlighted issues that had been relatively well-known for years - including that Icahn's investment fund had suffered a decade-long losing streak as Icahn stubbornly remained bearish as a bull market raged around him. He shorted the stock market in a big way as a hedge against his long activist positions. Going into 2021, for example, Icahn's investment fund had a short exposure of 142%, SEC filings show.

Further details (May 2023): Carl Icahn admits he was wrong to take a huge short position on the market that lost $9 billion

But Wall Street may have been most surprised to learn that Icahn had borrowed against units he owned in IEP, which had been disclosed in a footnote to the company's February 2022 10-K, where most people had overlooked it.

Icahn and his son Brett own 85.5% of the company, which offers exposure to Icahn's personal portfolio of public and private companies - including petroleum refineries, car-parts makers, food-packaging companies and real estate. Its unit holders are mostly retail investors.

Icahn later disclosed to the Financial Times that he was using the loans to make additional investments outside of his publicly traded vehicle.

"Over the years I have made a great deal of money with money," he was quoted as having said. "I like to have a war chest, and doing that gave me more of a war chest."

From the archives (May 2023): What we know about Carl Icahn's margin loan

IEP swung to a loss in the quarter immediately after the report was published, and Icahn blamed that result on the report, authored by Hindenburg founder Nathan Anderson. But IEP also halved its dividend in August 2023 to $1 a share.

From the archives (May 2023): Carl Icahn rebuts short seller Hindenburg Research's report. It's already cost his company $6 billion in market cap.

Shares of IEP were up 10% in early trade but are down 37% in the year to date. The stock has shed more than 70% of its value since the Hindenburg report.

-Ciara Linnane

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09-16-24 1013ET

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