The Securities and Exchange Commission (SEC) today announced charges against activist investor Carl Icahn and his publicly traded company, Icahn Enterprises (IEP).
The SEC alleged that Icahn failed to disclose the use of IEP securities for billion-dollar personal margin loans. To settle the charges, Icahn and IEP agreed to pay $500,000 and $1.5 million in civil penalties, respectively.
According to the SEC, it found that from December 31, 2018, to the present day, Icahn, who is IEP’s controlling shareholder and board chair, pledged between 51% and 82% of IEP’s outstanding securities to secure personal loans from various vendors. IEP did not disclose the pledges in its Form 10-K filings until February 2022, the SEC said. Icahn also did not file required amendments to Schedule 13D to report the loan agreements, some of which dated back to 2005 and did not include necessary guaranty agreements. The SEC claims the disclosure failures occurred until July 2023.
“The federal securities laws imposed independent disclosure obligations on both Icahn and IEP. These disclosures would have revealed that Icahn pledged over half of IEP’s outstanding shares at any given time,” said Osman Nawaz, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit (CFIU). “Due to both disclosure failures, existing and prospective investors were deprived of required information.”
The SEC’s investigation, led by members of the Asset Management Unit and Complex Financial Instruments Unit, concluded that IEP violated Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-1. Icahn was found to have violated specific beneficial ownership reporting provisions under the same act. Both parties agreed to cease future violations without admitting or denying the findings.
Icahn’s involvement in medtech
Icahn Enterprises has played a role in medtech board management in recent years. As an activist investor under Icahn’s leadership, IEP acquires significant stakes in companies across various industries to influence management decisions and drive strategic changes aimed at increasing shareholder value.
Most recently, Icahn’s board nominee, Andrew Teno, was appointed to Illumina’s board of directors in 2023, beating out previous board chair John Thompson in a shareholder vote. The board chair challenge came amid criticism and regulatory scrutiny over how Illumina management handled its $7.1 billion acquisition of cancer test maker Grail.
Icahn also had a hand in Hologic’s successes in 2016. The billionaire investor ramped down involvement in the women’s health company in March 2016 after a three-year stint as a large shareholder.
Since Steve MacMillan took over as Hologic CEO, and Icahn joined the company in the fall of 2013, Hologic shares have outperformed its index, gaining approximately 56%.
Icahn currently has a small stake in medtech and healthcare companies Illumina, Bausch & Lomb and Bausch Health Company.
Activist investors are taking an interest in medical device companies
Masimo has been the subject of another activist investor group in recent months. The company has fought with Politan Capital Management, an activist investor. In May 2023, Politan Managing Partner and Chief Investment Officer Quentin Koffey called for “greater oversight in the boardroom [to] help Masimo realize its full potential.”
Masimo’s management team, led by founder, CEO, and Chair Joe Kiani, defended its record, saying it has “delivered strong returns for investors through sustained profitable above-market growth.”
In July, activist investor Cevian Capital purchased a 5% stake in Smith+Nephew. According to an SEC disclosure, the Swedish investment firm now has 5% of voting rights attached to the shares. Reuters reports that the new holding makes Cevian the second largest shareholder of London-based Smith+Nephew.
The orthopedic company’s performance has been marked by modest growth in recent years. Smith+Nephew’s stock (NYSE:SNN) grew 1.5% in 2023, according to a MassDevice analysis of the largest medtech companies’ stock performances. However, SNN shares have been down more than 37% over the past five years.
