Hindenburg Research accuse Carl Icahn of running a Massive Ponzi Scheme that Tricks Investors

Hindenburg Research, whose recent targets have included Indian billionaire Gautam Adani and electric-car company Nikola, announced a short position in Icahn Enterprises, claiming to have "uncovered clear evidence" of "inflated" valuations for some of the holding company's assets

The short seller pointed out that Icahn's firm's current dividend yield of 15% is among the highest on Wall Street — and that it "is entirely unsupported by IEP's cash flow and investment performance, which has been negative for years

Hindenburg also claimed that Icahn Enterprises has kept raising its dividend, despite lagging performance, in order to lure retail investors

Hindenburg said in its report: Icahn has been using money taken in from new investors to pay out dividends to old investors. “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

The report claims that Icahn Enterprises' rich cash dividends are 'mathematically unsustainable' and unsupported by the company's free cash flow. In the past 4 years alone, IEP has paid out $980 million in cash dividends, despite cumulatively burning almost $1.6 billion in free cash flow.

Hindenburg also alleged that the valuation of Icahn Enterprises units was inflated by more than 75 percent, and that the company's stock 'trades at a 218 percent premium to its last reported net asset value, vastly higher than all comparables. The report also notes that only one large investment bank offers research coverage on Icahn Enterprises: Jefferies, which has maintained a continuous 'buy' rating on IEP while also running all of the company's fresh share offerings since 2019.

Hindenburg also notes that Jeffries research reports assume IEP's dividend will continue in perpetuity, even in its pessimistic scenario, a projection the report calls 'one of the worst cases of sell-side research malpractice we've seen. 'Overall, they think Icahn, a legend of Wall Street, has made a classic mistake of taking on too much leverage in the face of sustained losses: a combination that rarely ends well. However, Hindenburg's claims could not be verified

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