SEC Takes Action Against Carl Icahn and Icahn Enterprises L.P.
The Securities and Exchange Commission (SEC) recently announced significant charges against Carl C. Icahn and his publicly traded company, Icahn Enterprises L.P. (IEP). These charges stem from Icahn’s failure to disclose critical information regarding his use of IEP securities as collateral for personal margin loans, which amount to billions of dollars. Both IEP and Icahn have agreed to settle these charges by paying civil penalties of $1.5 million and $500,000, respectively.
Icahn’s Pledging of IEP Securities: A Timeline of Non-Disclosure
From December 31, 2018, through the present, Carl Icahn, who serves as the controlling shareholder and Chairman of the board of directors for IEP’s general partner, pledged a substantial portion of IEP’s securities as collateral. This percentage ranged from 51% to 82% of IEP’s outstanding securities, securing personal margin loans under various agreements with lenders. Despite the significance of these pledges, Icahn and IEP failed to disclose this information as required by federal securities laws.
It wasn’t until February 25, 2022, that IEP disclosed Icahn’s pledging activities in its Form 10-K. Additionally, Icahn did not amend Schedule 13D, which would have described his personal margin loan agreements and amendments that dated back as far as 2005. Furthermore, he failed to include necessary guaranty agreements in these filings. This lack of disclosure persisted until at least July 9, 2023, depriving investors of essential information about the financial obligations tied to IEP’s securities.
SEC Enforcement Highlights Disclosure Failures
Osman Nawaz, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit (CFIU), emphasized the importance of these disclosures. He stated, “The federal securities laws imposed independent disclosure obligations on both Icahn and IEP. These disclosures would have revealed that Icahn pledged over half of IEP’s outstanding shares at any given time.” Nawaz highlighted that the failure to disclose this information deprived both existing and prospective investors of required and vital information.
Violations and Penalties
The SEC’s findings indicate that Icahn Enterprises L.P. violated Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-1 under that Act. Carl Icahn, on the other hand, violated specific beneficial ownership reporting provisions of the Exchange Act. Although neither IEP nor Icahn admitted to or denied these findings, they have both agreed to cease and desist from future violations and to pay the substantial civil penalties that were mentioned earlier.
This case underscores the critical importance of transparency and adherence to federal disclosure requirements, particularly when such significant financial stakes are involved. Investors rely on these disclosures to make informed decisions, and the failure to provide accurate and timely information can lead to severe consequences for both the individuals and companies involved.
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Editor’s Note: Readers are reminded that the SEC often over-charges, and ultimately backs away once a target mounts a defense. Unless the release indicates that the respondent has settled the charges, these are the SEC’s allegations, not evidence of wrongdoing. The respondent has not yet had the opportunity to present evidence or to counter the allegations contained in the SEC Press Release.
