Last year, being "bloodied" by short interest is not unjust: the US SEC exposed "Wolf King" Icahn for "concealing" $5 billion in margin loans

The latest settlement agreement disclosed by the U.S. Securities and Exchange Commission (SEC) shows that Carl Icahn, the "Wolf of Wall Street" targeted by the major short seller Hindenburg last year, did indeed have undisclosed substantial margin loans.

On Monday, August 19, the SEC announced that Icahn and Icahn Enterprises (IEP) reached a settlement with the SEC regarding the SEC's allegations that Icahn failed to disclose information about using his shares in IEP as collateral to obtain personal margin loans. Icahn and IEP agreed to pay a settlement amount of $2 million, with $500,000 from Icahn himself and $1.5 million from IEP. These collateralized assets helped Icahn secure margin loan agreements worth billions of dollars with multiple lenders.

According to the settlement agreement disclosed by the SEC on Monday, since at least December 31, 2018, Icahn, as the controlling shareholder and chairman of the board of IEP, pledged approximately 51% to 82% of IEP's outstanding shares to obtain margin loans worth billions of dollars, without disclosing this fact to shareholders or U.S. federal regulatory agencies. During the period from 2018 to 2022, 65% of IEP shares were pledged, and in exchange, Icahn obtained personal margin loans of up to $5.1 billion from various lenders.

The settlement agreement notes that Icahn and IEP cooperated with the SEC's investigation by providing relevant information and documents. Icahn and IEP neither admitted nor denied the findings of the SEC's investigation but agreed to cease any new violations.

On the day the settlement was announced by the SEC, IEP's stock price fell by 4.7% on Monday, dropping from the high closing level since August 2 to the low level since August 9, after rebounding last Friday. After-hours trading saw a further decline of over 1%.

华尔街见闻 previously mentioned that Icahn had a tough year last year, facing attacks from the short seller Hindenburg, investigations by regulatory authorities, and exposure of significant short positions. The SEC's investigation charges announced on Monday stemmed from Hindenburg's short report.

On May 3 last year, Hindenburg released a report alleging that IEP overstated asset valuations, had inflated asset valuations, and was excessively leveraged while experiencing continuous losses. The trading price of IEP's listed stock had a premium of over 200% to its net asset value (NAV), which was unusually high. Other closed-end holding companies, including funds managed by hedge fund giants Dan Loeb and Bill Ackman, traded at a discount to NAV.

Following the release of Hindenburg's report, IEP's stock price dropped by over 40% in four days. By late May, some media outlets estimated that Icahn's personal wealth had shrunk by $15 billion compared to before being targeted by Hindenburg.

A week after the release of Hindenburg's report, on May 10, IEP disclosed in documents submitted to the SEC that the U.S. Attorney's Office for the Southern District of New York had contacted IEP and certain subsidiaries on May 3, requesting the company and certain subsidiaries to Providing information on corporate management, capitalization, securities issuance, dividends, valuation, marketing materials, due diligence, and other related materials.

About a week later on May 18th, Icahn admitted in an interview with a media outlet that due to his wrong bet on the market collapse, IEP has lost nearly $9 billion over the past six years. The media analysis indicated that in 2017, Icahn lost about $1.8 billion due to hedging positions, which could have been profitable if asset prices had plummeted. From 2018 to the first quarter of last year, Icahn lost another $7 billion. At that time, Icahn thought the market was in big trouble after the outbreak of the COVID-19 pandemic, but the Federal Reserve injected trillions of dollars to support the market. As the saying goes, his lesson was "don't go against the Federal Reserve."

Due to Icahn's short selling causing IEP to lose billions of dollars, he injected nearly $4 billion of his personal funds into the company to maintain the stability of the investment portfolio. The media reported that Icahn raised a margin loan disclosed for the first time in early 2022 for financing. Icahn used his 60% stake in IEP as collateral and obtained a margin loan from Morgan Stanley. Hindenburg's report stated that Icahn pledged his 65% stake in IEP as collateral for the margin loan, without specifying the specific use of the loan. If a sharp drop in IEP's stock price leads to additional margin calls and forces Icahn to liquidate his shares, IEP's business may disintegrate.

After the above interview was revealed, in late May last year, hedge fund tycoon Bill Ackman, who was dubbed the "Pandemic God of War" for making $2.6 billion in just three weeks during the 2020 pandemic, commented that Hindenburg's report exposed Icahn's "bottoms" in managing IEP, using margin loans to offset his stake in IEP, which to some extent reminded him of Archegos, a hedge fund that lost billions of dollars in a margin call in 2021.

In July last year, IEP disclosed in documents submitted to the SEC that Icahn reached agreements with five banks including Bank of America and Morgan Stanley to restructure $3.7 billion in personal loans. The new agreement separated Icahn's loans from IEP's stock price, and margin calls were no longer tied to stock prices. The settlement agreement released by the SEC this Monday showed that it wasn't until July last year that Icahn described his personal agreements and the pledging of IEP securities in the revised SEC filing