Feared short-seller Hindenburg Research has a new target in its sights, and this time it’s no less than one of the role models for Gordon Gekko himself.
The firm is going after Carl Icahn, a legendary activist investor who’s been around for decades. Director Oliver Stone borrowed heavily from the real-life titan to create his fictional “greed is good” corporate raider, immortalized by Michael Douglas in the film Wall Street.
Hindenburg accused Icahn of luring “average” investors to his exchange-listed investment holding company, Icahn Enterprises, with the highest dividend yield of any large-cap stock currently trading, then using their investments to pay others.
“Icahn has been using money taken in from new investors to pay out dividends to old investors,” Hindenburg wrote on Tuesday.
The $2 quarterly payout is equivalent to roughly 16% of the share price at the time Hindenburg published its note. Icahn Enterprises also enjoys an “absurd 218% premium” to the value of its assets, according to Hindenburg. By comparison, shares trading over the counter in Bill Ackman’s Pershing Square trade at a 35% discount to its reported assets.
Since the cash flows Icahn’s company generates are entirely insufficient to afford the generosity of a $2 quarterly payout, according to Hindenburg, it argues the business model is unsustainable, and in part explains why virtually no professional money managers invest in Icahn Enterprises.
Icahn Enterprises instead supported this dividend policy by selling $1.7 billion worth of shares over the past four years since 2019, Hindenburg claimed.
Is Carl Icahn the next big short?
— Genevieve Roch-Decter, CFA (@GRDecter) May 2, 2023
He just got a taste of his own medicine from Hindenburg Research
Icahn is being called out for $IEP, his $15 billion investment fund that allegedly tricks retail investors into investing based on an artificially high dividend yield of nearly… pic.twitter.com/sN6G16xvnv
“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,’” Hindenburg wrote.
Shares in Icahn Enterprises fell sharply amid the accusations, down 16% on Tuesday.
Fortune reached out repeatedly to Icahn Enterprises for comment but did not immediately receive a reply.
Icahn made a name for himself in 1985 with a campaign against management at Trans World Airline (TWA), which resulted in him acquiring the now-defunct carrier a year later in a story that mirrored Gekko’s pursuit of fictional Bluestar in Wall Street.
Hindenburg developed a reputation for sniffing out misbehavior after famously pulling the curtain back on fraud committed by Nikola CEO Trevor Milton, who is presently awaiting sentencing.
More recently Hindenburg accused India’s Gautam Adani of corporate malfeasance in January. At the time the tycoon was the world’s third-richest man behind only Bernard Arnault and Elon Musk, but his empire and his own personal fortune suffered a severe blow in the process.
In a lengthy response, Adani Group called the allegations baseless and went so far as to claim it an affront to all Indians. “This is not merely an unwarranted attack on any specific company but a calculated attack on India,” it wrote that month.
In March, the short-seller went after Twitter cofounder Jack Dorsey and his new fintech company Block, alleging it was inflating its performance.
Block responded by saying it would explore legal action against Hindenburg Research for the “factually inaccurate and misleading report.”
