Caesars Activist Investor to Pay $2M to Settle SEC Charges

According to US regulators, billionaire investor Carl Icahn and his company Icahn Enterprises LP (IEP) have agreed to pay $2 million in penalties after settling with the US Securities and Exchange Commission over the alleged failure to disclose pledging most of IEP’s securities in personal margin loans. 

The activist investor will pay $1.5 million in civil penalties while his company will cover a penalty of $500,000 as part of the settlement.

Investors, Deprived of Required Information

The SEC Enforcement Division’s Complex Financial Instruments Unit’s chief, Osman Nawaz, spoke about the “independent disclosure obligations” imposed by the federal securities laws on both Icahn and his company.

According to Nawaz, the respective disclosures showed Icahn pledged between 51% and 82% of IEP’s “outstanding shares at any given time.”

The company’s Form 10-K required Ichan to disclose the pledges until February 25, 2022. 

Since Icahn and IEP failed to disclose this information, both current and prospective investors “were deprived of required information,” added the unit’s chief.

Information from the SEC says Icahn pledged the outstanding securities as collateral to secure personal margin loans that were worth billions from different lenders.

The investor, who recently accumulated an important stake in Caesars, the largest casino-entertainment company in the US, also failed to file the necessary amendments to the company’s Schedule 13D detailing Icahn’s personal margin loan agreements.

Moreover, the same investigation revealed that Icahn also failed to guarantee the agreements, and the issue persisted until at least July 9, 2023.

Ponzi Scheme Accusations 

The assessment from the SEC came after a report by New York’s short seller Hindenburg Research which triggered a 20% drop in the price of shares. 

Hindenburg then alleged the company had overvalued its holdings and that the value of its assets had been inflated as part of a “Ponzi-like” scheme used to pay dividends.

In a statement, Icahn explained that, following Hindenburg’s “false report” used to “make money on its short position at the expense of ordinary investors,” the resulting government investigation had led to the current settlement that did not claim either him or IEP had inflated the value of assets or engaged in “a ‘Ponzi-like’ structure.”

Hindenburg took it to X to comment that the latest developments did not disprove their accusations, adding that IEP kept reporting losses while trading at elevated values.

As a result of the announced settlement, IEP’s share price has gone down 7.4% to $16.18.

Icahn’s accumulated stake in Caesars followed his previous contribution to the $17.3 billion cash and stock merger with Eldorado Resorts four years ago.

In turn, Icahn’s stake triggered a 16% bump in their share price in May. 

At the start of the month, Caesars Entertainment announced signing a definitive agreement to sell its intellectual property rights to the World Series of Poker (WSOP) to NSUS Group Inc.