If the US attorney’s office for the Southern District of New York is examining the allegations made about Icahn Enterprises by short seller Hindenburg Research, however, that could be a far more sweeping probe than even the one into Icahn’s ties to Ivan Boesky, legal experts said. 

The US attorney’s office has not said what triggered the information request. But it came one day after Hindenburg released its report accusing Icahn Enterprises of greatly inflating its asset valuations. The short seller likened the firm to a Ponzi scheme, saying it paid an unjustifiably high dividend to existing investors by bringing in new ones drawn both by Icahn’s reputation and the dividend.

Icahn Enterprises said last week that it’s complying with a request for information on its corporate governance, securities offerings, dividends and due diligence, among other materials and noted that prosecutors had made no allegations against Icahn or the firm. Lawyers for Icahn Enterprises declined to comment on Monday.

Former federal prosecutor Sam Amir Toossi said it would make sense for the Southern District to look at the Hindenburg claims. 

Hindenburg is “accusing the asset management company of inflating the valuations by as much as 70%, and they’re using the term Ponzi scheme, so of course the US attorney’s office is going to look into that and lob a subpoena and see what they find,” he said. Of added concern, Toossi said, was that Hindenburg suggested retail rather than institutional investors were being harmed.

Public Harm

“When the public could be harmed, it’s definitely more of interest to a federal prosecutor,” he said. “I would argue it would weigh in favor of being a bit more aggressive.”

Prosecutors rarely disclose the status of inquiries that don’t advance to criminal charges. If the Southern District decides not to pursue a fuller investigation after Icahn Enterprises responds to its information request, the office is unlikely to issue a statement to that effect. The matter will simply be dropped, as has happened a number of times in the past with Icahn. who has never been charged with a financial crime.

Icahn first rose to fame in the 1980s as one of the original corporate raiders, famously acquiring Trans World Airlines in a hostile takeover and then selling off its routes and other assets. During that time, he frequently rubbed shoulders with figures like Boesky and Michael Milken. 

As detailed in James Stewart’s Den of Thieves, Icahn and Boesky in 1983 both acquired stakes in Gulf and Western Industries Inc., the conglomerate that then owned Paramount Pictures. Boesky later named Icahn to prosecutors investigating the unsuccessful takeover bid as possible market manipulation. Another Boesky associate, John Mulheren, was later convicted for his role in the Gulf and Western transaction, but the probe of Icahn didn’t advance past the subpoena stage. 

In more recent times, Icahn’s name came up in a 2014 insider-trading investigation that led to the conviction of Las Vegas gambler Billy Walters. At trial, Walters’s primary broker said that Walters got most of his trading ideas from Icahn. Icahn, who wasn’t accused of wrongdoing, told Bloomberg TV at the time that he has never given out inside information.

Southern District prosecutors have also looked at whether Icahn took advantage of a longtime friendship with then-President Donald Trump, whose administration he joined as an unpaid “special adviser.” In November 2017, Icahn Enterprises revealed in a regulatory filing that Manhattan federal prosecutors had issued it subpoenas seeking information on whether Icahn had sought to influence environmental policy in a way that would benefit CVR Energy Inc., an independent oil refiner in which he owns a majority share. 

Though he left his White House role amid the criticism, Icahn said he never had access to confidential information, didn’t profit from his position and said his advocacy was rational given that he owned a stake in a refinery.

Trump Tariff Plans

In May 2019 Icahn revealed in another filing with regulators that Southern District prosecutors sought information about his sale of shares in Wisconsin crane manufacturer Manitowoc Co. to determine whether he profited from nonpublic information about US plans for tariffs on imported steel while he was Trump’s adviser. Icahn said he had no knowledge of tariff plans before his company sold more than one-third of his stake in the company.

In both instances, Icahn Enterprises said it was complying with the requests. It’s not clear if anything came of either inquiry.

Rather than focus on a specific transaction, the Hindenburg report, alleges Icahn Enterprises engaged in a lengthy pattern of mismarking the value of its assets. 

Southern District US Attorney Damian Williams has made cracking down on mismarking — the use of questionable methods to make illiquid and private assets look more valuable than they are – a major focus of the office. In recent years, Southern District prosecutors have brought several cases over such conduct against hedge funds, private equity funds and family offices.

‘Intentionally Inflated’

Hindenburg cited CVR in its report as an example of Icahn’s alleged asset valuation inflation. According to the short seller, Icahn’s valuation for the company, its second-largest holding, fails to account for a cyclical decline in refinery margins as well as major drop in the price of fertilizer, a major product for CVR.

Southern District prosecutors have previously investigated claims Hindenburg made about another company. Nikola Corp. founder Trevor Milton was convicted of fraud in October for exaggerating to investors the capabilities of the company’s debut electric truck. 

Toossi said any prosecution stemming from Hindenburg’s allegations about Icahn Enterprises wouldn’t be an easy case to bring though.

“Valuation cases are hard to make because a prosecutor has to show that the valuations are intentionally inflated,” he said. “It’s not enough to say that they’re wrong. It’s not enough to say they are not well-grounded or not well-reasoned. You really have to show there is an intent to inflate them, to juice the stock price or whatever the case may be. In any white collar case, intent is the hardest thing to prove.”