NEW DELHI: Corporate activist Carl Icahn is the latest target of US-based short-seller Hindenburg Research, with its bombshell revelations wiping out nearly one-fifth of his empire’s value.
Icahn’s vast fortunes tumbled more than $10 billion on Tuesday after Hindenburg accused him of using a “ponzi-like” economic structure at his investment company.
Hindenburg Research reports on companies, including against Adani Group, have erased a big chunk of their stock value.
But what does short-selling really means and why do Hinbenburg reports have such a huge impact on companies. Here are all your questions answered …
For starters, what is short-selling and why does Hinbenburg engage in it?
Short selling is an investment strategy that involves borrowing and selling a security that the seller expects to decline in price, and then buying it back later at a lower price to make a profit. Hindenburg Research is a US investment research firm that specializes in activist short-selling, which means it publishes investigative reports on companies that it believes are overvalued, fraudulent or misleading investors. Hindenburg Research makes money by taking a short position in the target company before releasing its report, and then profiting from the drop in the share price after the report is made public.
Some examples of companies that Hindenburg Research has targeted with its short-selling reports are:
Icahn Enterprises, a conglomerate controlled by billionaire activist investor Carl Icahn. Hindenburg alleged that the company was overvalued by more than 75% and had a “ponzi-like economic structure” that relied on new investors to pay dividends to old investors.
Adani Group, the Indian conglomerate with interests in energy, infrastructure, mining, and ports. Hindenburg claimed that the group was pulling “the largest con in corporate history” by inflating its share prices through a complex web of offshore entities, insider trading, and money laundering.
Block Inc, formerly known as Square Inc, a digital payments company led by Twitter co-founder Jack Dorsey. Hindenburg accused the company of inflating its user metrics and facilitating fraud on its platform, enabling insiders to cash out over $1 billion.
Nikola Corporation, an electric truck maker that was once valued at more than $30 billion. Hindenburg exposed the company’s false claims about its technology, partnerships, and achievements, calling it “an intricate fraud built on dozens of lies”.
What are the legal and ethical implications of short-selling?
Short-selling has both legal and ethical implications that are often debated and controversial. On the one hand, short-selling can be seen as a legitimate and beneficial market activity that provides price discovery, liquidity, risk management, and market efficiency.
Short sellers can also expose financial fraud, overvaluation, and corporate malfeasance by conducting rigorous research and analysis on their target companies. On the other hand, short-selling can also be seen as a predatory and harmful practice that exploits market loopholes, manipulates prices, spreads false or misleading information, and profits from the misfortune of others. Short sellers may face legal risks if they violate securities laws or regulations, such as engaging in naked short-selling (selling shares without borrowing or delivering them), insider trading, market abuse, or defamation. Short sellers may also face ethical dilemmas if they harm the interests of other stakeholders, such as shareholders, employees, customers, creditors, or society at large.
Some ways to regulate or limit short-selling are:
The short-sale rule: This rule, also known as the uptick rule, required that short sales could only be executed at a price above the most recent trade, i.e., on an uptick in the share’s price. The rule was intended to prevent short sellers from adding to the downward momentum of a declining stock. The rule was abolished by the US Securities and Exchange Commission (SEC) in 2007, but was reinstated in 2010 as an alternative uptick rule that applies only when a stock has dropped more than 10% in one day.
The borrow requirement: This requirement mandates that short sellers must borrow or arrange to borrow the securities they intend to sell short before executing the trade. This prevents naked short-selling, which involves selling shares without borrowing or delivering them. Naked short-selling can create phantom supply and drive down prices artificially. Naked short-selling is generally illegal or restricted in most jurisdictions
The disclosure requirement: This requirement obliges short sellers to disclose their short positions or transactions to the regulators, the market, or both. This enhances transparency and accountability in the market and allows regulators to monitor and deter abusive or manipulative short-selling practices. Different jurisdictions have different disclosure rules and thresholds for short-selling.
The ban or restriction: This is the most extreme measure to regulate or limit short-selling, which involves prohibiting or suspending short-selling activities in certain securities, sectors, or markets for a specified period of time. This is usually done in times of market turmoil or crisis to prevent excessive volatility, panic selling, or systemic risk. However, such bans or restrictions may have unintended consequences, such as reducing liquidity, impairing price discovery, and increasing trading costs.
How Hindenburg Research makes profit?
Hindenburg Research makes profit by betting against the companies that it investigates and exposes as overvalued, fraudulent, or misleading. According to its website, Hindenburg Research is a financial research firm that investigates equity, credit, and derivatives for potential accounting irregularities, mismanagement, and undisclosed transactions. The company invests its own capital and takes a short position in the target company before publishing its report on its findings. If the report causes the target company’s share price to decline, Hindenburg Research profits from the difference between the price at which it sold short and the price at which it bought back the shares. Hindenburg Research has targeted several companies with its short-selling reports, such as Nikola Corporation, Clover Health, Block Inc., Adani Group, and others.
How did Carl Icahn make his fortune?
Carl Icahn made his fortune through his investment strategies, which include the “Icahn lift” phenomenon, a strategy of investing in and turning around struggling companies.
What is the “ICahn lift” phenomenon?
The “Icahn lift” phenomenon is a strategy of investing in and turning around struggling companies, which results in a rise in the stock price of the company after Carl Icahn purchases its shares. He has a track record of identifying undervalued companies and taking large stakes in them, which often results in a large gain in the process. Icahn purchases a large number of a corporation’s shares and then requests a new board of directors or the sale of its assets to deliver more value to shareholders
What is Carl Icahn’s net worth?
As of May 2023, Carl Icahn’s net worth is $14.6 billion, according to latest estimates. His net worth plunged by more than $10 billion in a day after short-seller Hindenburg Research accused him of using a “ponzi-like” economic structure at his investment company. Icahn’s fortune sank by an unprecedented 41% to $14.6 billion, according to the wealth index, dropping him from the world’s 58th-richest person to the 119th.
How many companies have Hindenburg targeted since its inception?
According to its website, Hindenburg Research has released reports on more than 15 companies since its inception in 2017. Some sources suggest the number is around 17. Some of the companies that Hindenburg Research has targeted are Nikola Corporation, Clover Health, Block Inc., Adani Group, Kandi, Lordstown Motors, Tecnoglass, SC Worx, HF Foods, Riot Blockchain, and others.
Icahn’s vast fortunes tumbled more than $10 billion on Tuesday after Hindenburg accused him of using a “ponzi-like” economic structure at his investment company.
Hindenburg Research reports on companies, including against Adani Group, have erased a big chunk of their stock value.
But what does short-selling really means and why do Hinbenburg reports have such a huge impact on companies. Here are all your questions answered …
For starters, what is short-selling and why does Hinbenburg engage in it?
Short selling is an investment strategy that involves borrowing and selling a security that the seller expects to decline in price, and then buying it back later at a lower price to make a profit. Hindenburg Research is a US investment research firm that specializes in activist short-selling, which means it publishes investigative reports on companies that it believes are overvalued, fraudulent or misleading investors. Hindenburg Research makes money by taking a short position in the target company before releasing its report, and then profiting from the drop in the share price after the report is made public.
Some examples of companies that Hindenburg Research has targeted with its short-selling reports are:
Icahn Enterprises, a conglomerate controlled by billionaire activist investor Carl Icahn. Hindenburg alleged that the company was overvalued by more than 75% and had a “ponzi-like economic structure” that relied on new investors to pay dividends to old investors.
Adani Group, the Indian conglomerate with interests in energy, infrastructure, mining, and ports. Hindenburg claimed that the group was pulling “the largest con in corporate history” by inflating its share prices through a complex web of offshore entities, insider trading, and money laundering.
Block Inc, formerly known as Square Inc, a digital payments company led by Twitter co-founder Jack Dorsey. Hindenburg accused the company of inflating its user metrics and facilitating fraud on its platform, enabling insiders to cash out over $1 billion.
Nikola Corporation, an electric truck maker that was once valued at more than $30 billion. Hindenburg exposed the company’s false claims about its technology, partnerships, and achievements, calling it “an intricate fraud built on dozens of lies”.
What are the legal and ethical implications of short-selling?
Short-selling has both legal and ethical implications that are often debated and controversial. On the one hand, short-selling can be seen as a legitimate and beneficial market activity that provides price discovery, liquidity, risk management, and market efficiency.
Short sellers can also expose financial fraud, overvaluation, and corporate malfeasance by conducting rigorous research and analysis on their target companies. On the other hand, short-selling can also be seen as a predatory and harmful practice that exploits market loopholes, manipulates prices, spreads false or misleading information, and profits from the misfortune of others. Short sellers may face legal risks if they violate securities laws or regulations, such as engaging in naked short-selling (selling shares without borrowing or delivering them), insider trading, market abuse, or defamation. Short sellers may also face ethical dilemmas if they harm the interests of other stakeholders, such as shareholders, employees, customers, creditors, or society at large.
Some ways to regulate or limit short-selling are:
The short-sale rule: This rule, also known as the uptick rule, required that short sales could only be executed at a price above the most recent trade, i.e., on an uptick in the share’s price. The rule was intended to prevent short sellers from adding to the downward momentum of a declining stock. The rule was abolished by the US Securities and Exchange Commission (SEC) in 2007, but was reinstated in 2010 as an alternative uptick rule that applies only when a stock has dropped more than 10% in one day.
The borrow requirement: This requirement mandates that short sellers must borrow or arrange to borrow the securities they intend to sell short before executing the trade. This prevents naked short-selling, which involves selling shares without borrowing or delivering them. Naked short-selling can create phantom supply and drive down prices artificially. Naked short-selling is generally illegal or restricted in most jurisdictions
The disclosure requirement: This requirement obliges short sellers to disclose their short positions or transactions to the regulators, the market, or both. This enhances transparency and accountability in the market and allows regulators to monitor and deter abusive or manipulative short-selling practices. Different jurisdictions have different disclosure rules and thresholds for short-selling.
The ban or restriction: This is the most extreme measure to regulate or limit short-selling, which involves prohibiting or suspending short-selling activities in certain securities, sectors, or markets for a specified period of time. This is usually done in times of market turmoil or crisis to prevent excessive volatility, panic selling, or systemic risk. However, such bans or restrictions may have unintended consequences, such as reducing liquidity, impairing price discovery, and increasing trading costs.
How Hindenburg Research makes profit?
Hindenburg Research makes profit by betting against the companies that it investigates and exposes as overvalued, fraudulent, or misleading. According to its website, Hindenburg Research is a financial research firm that investigates equity, credit, and derivatives for potential accounting irregularities, mismanagement, and undisclosed transactions. The company invests its own capital and takes a short position in the target company before publishing its report on its findings. If the report causes the target company’s share price to decline, Hindenburg Research profits from the difference between the price at which it sold short and the price at which it bought back the shares. Hindenburg Research has targeted several companies with its short-selling reports, such as Nikola Corporation, Clover Health, Block Inc., Adani Group, and others.
How did Carl Icahn make his fortune?
Carl Icahn made his fortune through his investment strategies, which include the “Icahn lift” phenomenon, a strategy of investing in and turning around struggling companies.
What is the “ICahn lift” phenomenon?
The “Icahn lift” phenomenon is a strategy of investing in and turning around struggling companies, which results in a rise in the stock price of the company after Carl Icahn purchases its shares. He has a track record of identifying undervalued companies and taking large stakes in them, which often results in a large gain in the process. Icahn purchases a large number of a corporation’s shares and then requests a new board of directors or the sale of its assets to deliver more value to shareholders
What is Carl Icahn’s net worth?
As of May 2023, Carl Icahn’s net worth is $14.6 billion, according to latest estimates. His net worth plunged by more than $10 billion in a day after short-seller Hindenburg Research accused him of using a “ponzi-like” economic structure at his investment company. Icahn’s fortune sank by an unprecedented 41% to $14.6 billion, according to the wealth index, dropping him from the world’s 58th-richest person to the 119th.
How many companies have Hindenburg targeted since its inception?
According to its website, Hindenburg Research has released reports on more than 15 companies since its inception in 2017. Some sources suggest the number is around 17. Some of the companies that Hindenburg Research has targeted are Nikola Corporation, Clover Health, Block Inc., Adani Group, Kandi, Lordstown Motors, Tecnoglass, SC Worx, HF Foods, Riot Blockchain, and others.
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