The bad news just got worse for legendary activist investor Carl Icahn after federal prosecutors opened an inquiry into his investment company Icahn Enterprises (IEP).
The US Attorney's office for the Southern District of New York contacted Icahn Enterprises on May 3 -- a day after a short-seller report from Hindenburg Research set out some serious allegations -- seeking information about the corporate governance, capitalization, securities offerings, dividends, valuation, marketing materials, and due diligence among other information.
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The company says it is cooperating with the investigation, but points out that the US Attorney's office "has not made any claims or allegations against us or Mr. Icahn," according to its quarterly 10Q filing.
Despite the company's insistence on its innocence, Icahn Enterprises shares were down nearly 20% in afternoon trading Wednesday. A similar drop in the firm's stock price last week cost Icahn a reported $10 billion in a day and drew a bit of celebration from Icahn's longtime nemesis Bill Ackman.
Hindenburg's report said that the dividends IEP pays out are "mathematically unsustainable" due to the fact that $1.5 billion in cash dividends have been paid since 2014 despite negative free cash flow of $4.9 billion during that period.
In short, Icahn has been using money from new investors to pay out dividends to old investors," the note stated.
