Hindenburg Research, a well-known U.S. short seller, has recently announced its short position in Icahn Enterprises, a conglomerate controlled by activist investor Carl Icahn. Following this announcement, Icahn Enterprises' shares have fallen nearly 10% in premarket trading. Hindenburg claims that the valuation of IEP units was inflated by more than 75%, and that IEP trades at a 218% premium to its last reported net asset value, much higher than all comparables. However, Icahn Enterprises did not immediately respond to a request for comment, and Reuters could not independently verify the claims made in Hindenburg's report.
According to Hindenburg, Icahn Enterprises was operating a "ponzi-like economic structure," where it sold its units to new investors to support dividend payouts to old investors. This means that Icahn has been using money taken in from new investors to pay out dividends to old investors, which is a highly questionable practice.
Icahn Enterprises is one of the most successful activist investment firms, and the chief investment vehicle of Icahn, who is known for his face-offs with several high-profile firms. As of last close, shares were down marginally this year, giving Icahn Enterprises a valuation of roughly $18 billion.
Hindenburg Research has a reputation for finding potential wrongdoings in companies, publishing a report, and then betting against the target company, hoping to make a profit. Earlier this year, Hindenburg's report on India's Adani Group triggered a more than $100 billion rout in the conglomerate's shares. Last month, the short seller took aim at Jack Dorsey-led Block Inc.
Short sellers typically sell borrowed securities and aim to buy these back at a lower price. While the practice of short selling is controversial, it plays an important role in maintaining market efficiency and keeping companies honest. It is important to note, however, that short selling can also lead to market manipulation, which is illegal.
In conclusion, the recent announcement of Hindenburg's short position in Icahn Enterprises has caused a significant drop in the company's shares. While the claims made in Hindenburg's report have yet to be independently verified, the reputation of the short seller for finding potential wrongdoings in companies cannot be ignored. It will be interesting to see how this situation develops in the coming weeks and months.
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