Carl Icahn, Activist Investor, Becomes Target of Short Seller

Over nearly a half-century, Carl Icahn has shaken up Wall Street as a corporate raider and activist shareholder, making corporate titans bow down to his demands and change their business strategies.

But on Tuesday, his publicly traded company, Icahn Enterprises, became a target of Hindenburg Research, the short seller firm that has made its name in recent years by taking on the Indian tycoon Gautam Adani and the Twitter co-founder Jack Dorsey.

Hindenburg accused Icahn Enterprises of being overvalued. The company trades well above its net asset value, unlike similar financial vehicles run by William A. Ackman and Daniel S. Loeb. Hindenburg also called out what it said was an unjustifiably hefty dividend being financed by stock sales.

“Icahn has been using money taken in from new investors to pay out dividends to old investors,” Hindenburg wrote in a public report. It likened Icahn Enterprises to “Ponzi-like economic structures” that survive only while new investors are willing to be the last “holding the bag.” Hindenburg said that it was betting that Icahn Enterprises’s shares would fall, which would give it a trading profit.

The company’s stock tumbled 20 percent on Tuesday and dropped an additional 20 percent during Wednesday trading.

Hindenburg also called out Jefferies, which it said was the only large investment bank to publish research on Icahn Enterprises — and also helps the company sell stock.

Icahn Enterprises responded by saying that it stood by its disclosures. “We believe the self-serving short-seller report published by Hindenburg Research today was intended solely to generate profits on Hindenburg’s short position at the expense of I.E.P.’s long-term unit holders,” the company said in a statement.

Over just a few years, Hindenburg and its founder, Nathan Anderson, have shot to prominence by publishing critical research papers on highflying companies. It has achieved considerable success: Nikola, an electric vehicle maker, ousted its founder after Hindenburg accused him of fraud, while companies in Mr. Adani’s business empire lost billions in market value after Hindenburg said they perpetrated stock manipulation and other misdeeds.

The Hindenburg report also notes that Mr. Icahn has taken so-called margin loans on Icahn Enterprises. Margin loans allow individuals or entities to borrow against the value of a stock, which becomes the collateral. Should the stock continue to drop, Mr. Icahn could be forced to sell more stock to meet those margin calls, which could spark an even sharper drop in the stock price.

Hindenburg got one prominent endorser: Mr. Ackman, a hedge fund mogul who memorably clashed with Mr. Icahn over the prospects of Herbalife, the supplements company that Mr. Ackman had shorted. (The two billionaires memorably bickered on CNBC in 2013, a confrontation that gripped Wall Street.)

They made peace, but time may not have healed all wounds. “There is a karmic quality to this short report that reinforces the notion of a circle of life and death,” Mr. Ackman tweeted of Hindenburg’s report. “As such, it is a must-read.”

Maureen Farrell contributed reporting.