Billionaire Carl Icahn — an individual who essentially brought activist investing to the mainstream — generated headlines again, with his conglomerate Icahn Enterprises (NASDAQ:IEP) falling sharply on Wednesday. Suffering from a short-seller report by Hindenburg Research, IEP’s disclosures revealed that regulators are now seeking additional information about the conglomerate’s corporate guidance. In the afternoon hours, IEP stock slipped about 15%.
According to CNBC, IEP’s regulatory filing disclosed that the U.S. attorney’s office for the Southern District of New York reached out to Icahn Enterprises last Wednesday. Specifically, it sought information about “corporate governance, capitalization, securities offerings, dividends, valuation, marketing materials, due diligence and other materials.”
The information access request occurred one day after Hindenburg took a short position against IEP stock. Primarily, the short seller alleged “inflated” asset valuations last Tuesday, thus creating an unusually high net asset value premium.
To be sure, Icahn Enterprises stated that “The U.S. Attorney’s office has not made any claims or allegations against us or Mr. Icahn with respect to the foregoing inquiry.” According to Bloomberg, the U.S. attorney’s office declined to comment.
As well, Bloomberg noted that Icahn hit back bluntly against the short seller. “Hindenburg Research, founded by Nathan Anderson, would be more aptly named Blitzkrieg Research given its tactics of wantonly destroying property and harming innocent civilians.”
IEP Stock Gets a Taste of the Other Side
At the moment, IEP stock is down about 38% since the beginning of this year. Although stakeholders naturally have reasons to be frustrated with Hindenburg, in a way, it’s also fair game. Arguably, Hindenburg conducts activist investing but on the other side of the equation.
As CNBC states, Icahn is “the most well-known corporate raider in history, made his name after pulling off a hostile takeover of Trans World Airlines in the 1980s, stripping the company of its assets.” More recently, the billionaire engaged in activist investing in McDonald’s (NYSE:MCD) and biotechnology specialist Illumina (NASDAQ:ILMN).
As Investopedia points out, activist investing involves acquiring a significant minority stake in a publicly traded company to change how it’s run. On the other hand, short selling involves identifying overinflated public enterprises and seeking an adjustment (i.e., correction). Both activists and short sellers have a profit motive, one aligned mechanically to the upside while the other to the downside.
Further, many in the public might perceive the volatility of IEP stock as a live-by-the-sword, die-by-the-sword moment. Carl Icahn hasn’t exactly made many friends with his brash style of activist investing.
Why It Matters
According to The New York Times, “Hindenburg employs a mix of former journalists, including from Bloomberg and CNN, and analysts.” In addition, the news agency notes that Hindenburg can take six months or more to produce a finished research report.
In other words, investors should be careful about adopting a contrarian approach against a contrarian. Like it or not, Hindenburg is hardly an amateur operation, which doesn’t bode well for IEP stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.