One way to understand Wall Street is by putting aside the numbers and the charts, the black and the red, the profits and the losses, and focus instead on the people who make or lose all this money. Investing is a human endeavor. Huge fortunes are often controlled by people with egos of comparable size. Among the biggest egos on Wall Street is Carl Icahn, whose net worth is around $28 billion. He is the archetypal corporate raider, someone whose decades of brutal takeovers — among them Trans World Airlines, RJR Nabisco, and Pep Boys — are so well-known that even the mention of his interest in a company creates problems for management by triggering the suggestion in everyone’s mind that the enterprise is poorly run and should be more profitable. To fight him is to light money on fire, the thinking goes, and it just isn’t worth it.
At least, that’s the story. On Tuesday, another Wall Street personality, Nathan Anderson, decided to come out of the blue and, like Omar Little in The Wire, raid the raider. Icahn Enterprises has been inflating its stock using accounting gimmicks and overvaluing its own investments, and it is on an unsustainable path that’s relying on dumb money, argues Anderson, who has developed a reputation as Wall Street’s most prescient and terrifying short seller — which is to say, an investor who bets on a company’s share price going down. “Icahn has been using money taken in from new investors to pay out dividends to old investors,” Anderson’s Hindenburg Research tweeted out this morning. “Such Ponzi-like economic structures are sustainable only to the extent that new money is willing to risk being the last one ‘holding the bag.’” It’s a very big swing at one of the most prominent figures in the financial world — and those of us who are just enjoying the action seem likely to get a lot of it over the next few months as investors probe Anderson’s claims and figure out whether Icahn Enterprises deserves a big haircut.
Here’s why this drama is happening, and why it matters.
Wall Street Is Buying Anderson’s Report
The word “Ponzi” has evil eye–like powers in the financial world — at least, when uttered by the right person. Anderson is among a very small number of people with the reputation that could deploy it successfully against Icahn. He exposed Trevor Milton, the founder of electric-vehicle company Nikola, as a fraud years before he was criminally convicted. Earlier this year, Anderson made a case that the world’s third-richest man, Gautam Adani, was “pulling the largest con in corporate history” by hiding family connections, inflating financials, and using ties to India’s ruling party. (Adani has denied the claims, but his net worth plunged from $119 billion to about half that in the ten days after Anderson dropped his report, and it’s stayed around there since). And Anderson continued his remarkable streak when shares of Icahn Enterprises dropped 25 percent — equivalent to a $5 billion loss — soon after the report came out, the biggest drop for the 87-year-old investor’s company since the COVID-19 panic of March 2020. Representatives for Icahn didn’t respond to a request for comment.
Icahn Looks Like the Kind of Target Icahn Might Raid
Icahn Enterprises is a holding company and, like other investment funds, it sells shares to the public. To buy a share of it exposes you to a group of big-name automotive companies (like Pep Boys), as well as lesser-known investments, like a petroleum refiner, a company that makes inedible casings for meats, a speciality pharmaceutical-maker. The company’s holdings have changed over time. But it also sells a story, a chance to give a vote of confidence to Icahn’s way of doing things — that if you can find a janky company, clean it up and run it better, you too can be rich like Carl.
But the problem here, as Anderson points out, is that Icahn’s investments aren’t actually doing that great. Since 2014, they’ve lost more than half their value, while the broader stock market is up more than 150 percent. And Icahn’s own reports for investors paint a picture that’s allegedly much rosier than reality. That meat-casing company he owns shares of? Icahn Enterprises valued its 90 percent stake at $243 million in December, when the whole company’s market value was $88.7 million.
On top of all that, he’s burning through money by giving it back to shareholders. Since 2014, he’s returned about $5 billion, raising the company’s dividend three times — so high that it’s now the biggest dividend for companies that size. According to Anderson, this is bringing in new investors who help keep the value of the company at three times what its assets are worth — multiples higher than other star investors’ funds, like those run by Dan Loeb or Bill Ackman.
Going After Icahn Hasn’t Worked Out for Everyone
This isn’t the first time Icahn has squared off against a well-known investor. In 2012, Ackman launched a $1 billion bet that supplement-maker Herbalife would crash to be worthless. The core of his argument was that the company used aggressive multilevel marketing campaigns to sell its products, which he said was really a “pyramid scheme,” doomed to blow up as it faced scrutiny. Soon after, Icahn came out in support of Herbalife, buying up 13 percent of the company. Did he do it because he loved Herbalife’s products so much? Maybe … or he wanted to humiliate Ackman, whom he called a “major loser” and a “crybaby” on CNBC. (Ackman also called him a “bully.”) By 2018, Herbalife had more than doubled in value. The Securities and Exchange Commission reached a $20 million settlement with the company in 2019 for misleading investors, but Wall Street didn’t care. Ackman had been down as much as $760 million before he finally gave up his bet.
(Ackman does appear to be relishing this fight from the sidelines, however.)
Anderson didn’t return a text and a call seeking more comment. At some point, Icahn is likely to respond, and it’s hard to imagine he won’t have his own story to push back on Anderson’s report. (He may even find some new insults to hurl at him on cable TV.) Still, Wall Street had all day to digest the report and ended up selling it off even more as the day went on. But at this point, how do you win back your reputation after you’ve been out-raided?
