The New York short sale firm Hindenburg Research is accused of a Ponzi-like scheme.
It’s become a major source of corporate fear, even panic, this year: Hindenburg Research in New York.
In January, the short sale investment firm acquired Indian businessman and billionaire Gautam Adani, which has enjoyed a meteoric rise over the past three years. On January 24, Asia’s richest man was charged by Hindenburg Research with fraud.
“We uncovered evidence of egregious accounting fraud, stock manipulation, and money laundering at Adani, which took place over decades,” Hindenburg wrote in a report. The document described a group of shell entities based in tax havens – the Caribbean, Mauritius and the United Arab Emirates – controlled by the Adani family.
The Adenian Empire rejected all these accusations and threatened to resort to legal measures to defend itself.
As a short seller, the Hindenburg is betting that share prices will fall.
Adani lost billions after the Hindenburg charges
But the consequences of Hindenburg’s accusations of research are serious. Al-Adani has seen his fortune decline by tens of billions of dollars. The man, whose wealth was fourth in the world, is now down to 21st. His net worth is estimated at $62.4 billion as of May 2, according to the Bloomberg Billionaires Index. That’s down from $58.1 billion this year.
In addition to his wealth, Adani has also seen his empire tarnished by these accusations, which have cast doubt on the organization and its interests in energy, transportation, and other sectors.
The New York investment firm shorted shares of the Adani conglomerate through US-traded notes and non-traded derivatives instruments in India.
The Hindenburg is also credited with bringing down Trevor Milton, founder of electric truck maker Nikola.
Just over three months after reporting on Adani, Hindenburg Research has attacked another legend, activist investor Carl Icahn, one of the investors most feared by business leaders.
Over the decades, the 87-year-old billionaire has built a reputation as an investor who makes CEOs cringe. Among them is Apple’s Tim Cook, who forced him to redistribute part of the shareholder cash pile that the iPhone maker was sitting on by executing a stock buyback.
Ikan, who has often played the attacker, now has to fend for himself.
Hindenburg Research accuses Icahn of using a Ponzi-like scheme in its investment firm Icahn Enterprises LP, a publicly traded limited partnership that acts as a holding company.
“In short, Icahn was using money taken in from new investors to pay dividends to old investors. Such Ponzi-like economic structures are only sustainable to the extent that the new money is willing to risk being the last person to ‘carry the bag,’” Hindenburg said in a statement. a report Posted on May 2.
As a common attacker, Icahn knows you have to react quickly if an attack occurs. That’s what he did.
The Hindenburg is a self-serving short seller: Icahn
Icahn, president of the IEP, said in a statement statement. “We stand by our public disclosures and believe the IEP’s performance will speak for itself over the long term as always.”
“Today, the IEP is operating from a position of strength with approximately $2 billion in cash and cash equivalents on its balance sheet as of March 31, 2023 to execute on our strategy,” he said.
At the moment, Hindenburg’s research charges are costing him dearly. IEP stock is down nearly 20% on Wall Street, its biggest daily drop. This reduced Icahn’s net worth by about $3.1 billion.
To that must be added another decline of $7.3 billion according to Bloomberg News. This may come from the fact that, according to Hindenburg Research, the investor had a margin loan secured by his share of the IEP. In all, Icahn’s net worth fell 41% to $14.6 billion in 24 hours, according to the Bloomberg Billionaires Index.
The billionaire has also slipped more than 69 places in the prestigious Global Wealth Rankings and The Observer. He is now the 119th richest person in the world. Prior to the Hindenburg Research Report, it was ranked 58th.
Carl Icahn has 84.85% of the IEP as of December 30th. The stake was then valued at $12.1 billion. That stake was valued at more than $15 billion on May 1, the day before the Hindenburg published its report.
The short seller said the IEPs are inflated by 75%+ due to the fact that the company is trading at a 218% premium to its last reported NAV. The IEP has also been accused of inflating the valuation of less liquid, private assets. IEP has investments in seven major business sectors: Investments, Energy, Automotive, Food Packaging, Real Estate, Home Fashion, and Pharmaceuticals.
“Icahn Enterprises’ current dividend yield is ~15.8%, making it the highest dividend yield of any major US company to date, with the closest yield being ~9.9%,” said Hindenburg. “As a result of the company’s higher unit price, the annual dividend rate is equal to 50.5% of the last reported indicative net asset value.”
Dividend and margin loan
The dividend out-of-company was made possible because, as the short seller asserted, Icahn was largely receiving the dividend in units rather than cash, reducing the overall cash outlay required to meet the dividend payment to the remaining unitholders.
“The dividend is not fully supported by the IEP’s cash flow and investment performance, which has been negative for years. The IEP’s investment portfolio has lost about 53% since 2014. The company’s free cash flow numbers show that the IEP has cumulatively burned nearly $4.9 billion over the same period. Hindenburg Research said.
Icahn has a margin loan secured by its share of the IEP. In February, 181 million of the 300 million shares were pledged, according to the company’s 2022 annual report. The 181 million shares were valued at $9.2 billion.
The principle of the margin loan is that if the value of the collateral decreases, the lender requires the borrower to pledge more collateral.
“Icahn did not disclose key metrics related to its margin lending such as loan-to-value (LTV), maintenance limits, principal amount, or interest rates,” Hindenburg Research said in the monetary report.
“We believe unit holders deserve this information to understand the risks of margin calls should IEP unit prices move back toward NAV, a fact we view as inevitable.”
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