Foreign on: Tuesday May 2nd one of Wall Street's most powerful hedge fund managers personally lost an estimated 6 billion dollars in a single day when the famous short selling firm Hindenburg accused him of running a quote ponzi-like Financial scheme despite Carl Icahn's Titan status on Wall Street earned through Decades of investment outperformance via activist investing, The report destroyed the Market's confidence in the Superstar manager. Between the close of trading on Monday May 1st right before the Hindenburg report and the close of trading two days later on Wednesday May 3rd, the price of Icon's publicly traded Investment Company Icon Enterprises LP lost over 35 percent of its value. This company's majority owned by Carl Icahn and he, along with his son, owned about 85 percent of its shares. It also represents a majority of his net worth at the time of writing this video.

The Mark to Market losses on his taken Icon Enterprises alone was over 3 billion dollars. Add on top of that, billions more lost on the Billionaire's margin loan collateralized with those shares though the specific details of the loan are private to Mr Icon. Various news: Outlets Reported that Icon personally lost a total of up to 10 billion dollars as a result of the tanking share price and now even the Feds are getting involved. So how did truly one of the richest, most powerful and most respected figures on Wall Street have his reputation and credibility shattered in such a short period of time? In this video, we'll explain why Hindenburg almost compared Karl Icon to a Ponzi schemer and uncover whether or not Icon has been riding high on a Wall Street reputation built on a House of Cards.

Keep in mind that everything in this video is only allegations from Hindenburg Carl Icahn His company and his associates are entitled to the presumption of innocence until proven guilty and we can make no guarantee of the accuracy of any of these allegations. The fact that Icon Enterprises can lose more than a third of its value overnight despite being backed by one of Wall Street's biggest Superstars shows how risky it can be to invest in single stocks. Because of this, many investors turn to broad-based index ETFs with hundreds of Holdings. The problem is if you invest in a Market ETF such as the S P 500 by definition, you get average market returns.

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Please know that the insurance does not cover Market losses though. so if your radius start investing smarter, check out the gaining app by clicking the link in the description below. Foreign to get an accurate sense of what Hindenburg's allegations are, we first have to understand a little bit about what Carl Icon does: An 87 year old activist investor icon lived most of his life in: New York City After graduating from Princeton in 1957, he built an incredibly successful career on Wall Street first as a stock broker, then as an activist investor and corporate. Raider He is a living rags to riches story on the largest scale imaginable.

Both of his parents were School teachers, but he eventually built one of the largest personal fortunes on the planet in 2021. Forbes Ranked him as the third richest hedge fund manager in the World Behind only Jim Simons and Ray Dalio just a few days ago. Bloomberg Pegged his net worth at 25 billion dollars. He made his money over the decades by purchasing large stakes in companies sometimes majority stakes and then either forcing change to increase shareholder value or splitting up the company's assets.

In the 80s, he made the Hostile takeover famous with some high profile. Investments One of his most famous episodes was his purchase of Transworld Airlines in the mid-80s at the time one of the biggest airlines in the world. In 1988, he took the company private and leveraged buyout. The buyout was highly accretive for Icon, but saddled the company with over half a billion dollars of debt that it couldn't afford.

Icon then sold the rice to several of the company's most valuable assets its Transatlantic routes to London to American Airlines which made Icon almost half a billion dollars in cash. However, with some of its most lucrative routes gone, Transworld Airlines struggled and filed for bankruptcy a few years later. When it emerged from bankruptcy, Icon had lost control of the company, but he was still able to arrange what would become known as the Carabu arrangement. This Arrangement gave Icon the right to buy plane tickets from Transworld at around half price.

He wasn't allowed to resell them through an outside travel agency, but he instead established his own travel agency called Loisfair.com Obviously, the Carabu arrangement was highly accredited for Icon and his new company, but selling tickets at 55 cents on the dollar was obviously terrible business for Trans World, and it cost the company about 100 million dollars per year. The company permanently died just a few years after. Icon has since been involved in countless other activist campaigns and has built one of the most impressive track records on Wall Street due to the nature of his style of making money, his campaigns are often very public and sometimes highly controversial. His notoriety among the investing public has made him a favor of retail investors.

He was able to capitalize on this even further by taking his company public, but that would prove to be a double-edged sword. Foreign, the famed Short Selling research firm Hindenburg Research released a damning report accusing Icon's company of running a ponzi-like economic structure. In the report, Hindenburg said quo Icon has been using money taken in from new investors to pay out dividends to Old investors. Such ponzi-like economic structures are sustainable only to the extent that new money is willing to risk being the last one holding the bag on guo Hindenburg Rose of Fame in 2020 when they exposed Nikola as a fraud, including by exposing them using a video of one of their trucks rolling down a hill as promotional footage of their hydrogen-powered vehicles.

Their report directly led to SEC and Department of Justice investigations that eventually led to a jury finding the former billionaire founder and CEO Trevor Milton guilty Hindenburg also went after Clover Health one of chamath Paula hapatio Stacks at the height of the 2021 spat craze, contributing to the stock losing over 90 percent of its value and the eventual popping of the entire spec bubble from these and several other high-profile short reports, Hindenburg has built a solid reputation on Wall Street so when they went after Carl Icahn on their latest report, even though Icon has been around for decades, people listen. The Crux of the report revolves around what Hindenburg describes as Icon, using a confusing economic structure and some clever Financial Accounting to inflate the value of his own assets. How it works is as follows: Carl Icahn's company IEP has billions of dollars with which it invests in various activist campaigns and other. Investments Most of this money is Carl Icons, as he and his son own roughly 85 percent of it, but the remaining 15 is publicly traded, meaning that people who admire Icon's track record, especially retail investors, are lured in to invest in the same company that Icon invests his own money through.

This gives Icons several benefits, but one of the biggest is that if IAP trades at a high stock price, then that makes Icon's own net worth on paper go up. And when you're on paper, net worth goes up. That gives you all sorts of real benefits, such as being able to take out margin loans with IEP shares as collateral. and that's exactly what Icon did.

The only problem with this is that the stock price of IEP must remain elevated to maintain Icon's net worth and margin requirements. If IEP has a few bad years in the stock market, that can be a big problem. and that's exactly what's happened in the past seven years. Analysis from the Financial Times found that Icons started putting on billions of dollars of short bets around 2017.

hoping to benefit from a market crash that never really happened, these short bets lost 1.8 billion dollars in 2017. As the S P 500 rallied over 20 percent over the course of the next six years, the short bets continued to sustain losses, bringing the total losses to an estimated 9 billion dollars according to the Ft. And these losses are where the Hindenburg allegations come in. According to Hindenburg, Icon protected the stock price of IAP in the face of these massive losses through several tactics.

The first was to take advantage of Iep's large retail investor base and offer a huge dividend yield 15.8 percent before the recent crash that's significantly greater than any other Us-based large cap company, and has actually been increased three times since 2015. when a company offers a large dividend that is stable or even increasing, that's perceived as an indication that the company is doing well and investors will get paid every quarter with a nice big dividend. But if IAP was actually sustaining massive losses, how could they afford to pay this huge dividend? It all goes back to the fact that only 15 percent of IEP is publicly traded. Icon himself Alexa take the dividend on his shares in the form of stock meaning the IEP only actually has to have 15 percent of the cash to pay the massive dividend yield.

In reality, the company's cash flow comes nowhere near being able to pay the dividend if Icon did not do this, as the cash flow has actually been negative in recent years. In fact, if the dividend were paid out in cash to all shareholders, it would take more than half of the reported net asset value of IEP just to pay the dividend for one year. But IEP did have to pay a relatively large amount of dividends on the 15 of shares that are publicly held. So where they get that cash from According to Hindenburg They got this cash by running a quote ponzi-like economic structure.

unquote. They have used regular open market sales of IEP shares via at the market offerings to raise 1.7 billion dollars over the past four years, taking advantage of their High stock market valuation to raise cash. In essence, that equates to taking money from new investors who were lured in by the high dividend yield of IEP and using their investment to pay the dividends of existing investors. Foreign, but just having a high dividend yield wasn't enough.

Most investors are smart enough to see if a company is paying too high of a dividend that it can't support with their business operations. So, according to Hindenburg, Icon also took measures to inflate the net asset value of IEP. Net asset value is the sum of the value of all the company's investments in assets minus any debt. They would report High values for some Of their Investments that are in reality probably worth much less.

For example, they owe 90 of a publicly traded meat packing company, which they valued at 243 million dollars. At the same time, the market cap of that same company was only about one-third of that, or 89 million dollars. One of the reasons that IEP gives for these dramatic markups and value is that because some of their Investments are E-liquid and thinly traded, the market price is not a valid representation of their true value. Most of the time, illiquity makes an asset less attractive because the investor has less optionality to buy or sell the asset in the Meat Packing Company example, they also bought over a million shares of that company within weeks of writing up the value of those shares by almost 200 percent.

Through this and other similar examples, Hindenburg estimates that the net asset value of IEP has been overreported by whopping 22 percent. This obfuscates the fact that IEP is generating huge losses and cannot mathematically support its dividend yield, but it doesn't even end there. IEP also benefits from favorable coverage from Wall Street Research: Jeffries is a large Investment Bank that engages in equity research where they publish analysis and recommendations to buy or sell Securities to investors. They've maintained a buy rating on IAP even citing a worst case scenario in which the dividend is still safe in perpetuity at the same time.

Jeffries also has done all of Iep's 1.7 billion dollars of at the market stock offerings. This is a huge potential conflict of interest, as the success of a stock offering is directly related to how much investor interest there is in the company who is selling the stock. This is a case of a Wall Street Bank on the one hand telling investors to buy a stock because it's large and safe dividend and on the other hand being the one profiting from the sale of those shares. Meanwhile, other investment Banks such as UBS have stopped coverage of IAP due to a lack of transparency with regards to the valuations of the company's assets.

The end result of this is that IEP has enjoyed a stock price way higher relative to its underlying Business Health than other similar stocks. There are numerous other stocks that allow investors to invest in a portfolio managed by star fund managers, including ones run by Bill Ackman And third, Point Stan Loeb. These kinds of funds almost always trade at or slightly under Nav, but IEP trades at a 218 premium. This High stock price is sustainable despite the high dividend because only 15 percent of the shares are actually required to pay a cash dividend and IEP is able to sell additional shares to fund those payments.

Carl Icahn has reportedly put up over half of his IEP shares as collateral for margin loans likely to fund as other Investments or a lavish lifestyle. Now that the stock price has crashed, the value of his collateral has plummeted, and he has likely lost additional billions of dollars in a margin call-like situation. Even worse for him, the Department of Justice is now getting involved on May 3rd the day after the Hindenburg report was released, Federal agents issued him an information request. And information request is not a formal allegation, but signals that it wants to review Iep's corporate governance.

Securities Offerings, dividends, and due diligence. Depending on what they find, they could make official allegations, and depending on the severity of the situation, it could potentially mean jail time for wall. Street's third richest billionaire foreign ly bad month for historically Great Wall Street Titan In a single day, his entire Empire pretty much crumbled beneath his feet at the hands of an upstart. Short Selling Firm implying that he is running something like a Ponzi scheme, but it didn't happen overnight.

For years, Icon has been betting big on an impending market crash, a crash which he kind of got in 2020 and to some extent in 2022, but largely failed. Instead of changing course, he'd doubled down by taking on Leverage in the face of his losses. It's a harrowing story that everyone can learn something from. no matter how good of a strategy you think you have, no matter what the market set up or how bulletproof your due diligence is.

And no matter how good of a track record you may have no one is above the market. Alright guys, that wraps it up for this video. What do you think about Carl Icahn Do you think his company should be considered a Ponzi scheme? Let us know in the comments section Below In the meantime, thank you so much for watching and we'll see you in the next one. Wall Street Millennial Signing out.