News Column

Icahn says little on insider-trading probe

June 2, 2014

By Gary Strauss, USA TODAY



Carl Icahn, long-accustomed to rattling CEOs, bullying boards and antagonizing rival investors, has been uncharacteristically sucker-punched by reports that he's under investigation for insider trading

At 78, Icahn shows little sign of easing into a sedentary lifestyle, let alone abating his role as a pre-eminent shareholder activist.

In the past year, Icahn's been a high-profile troublemaker at several companies: fighting a buyout of Dell Computer; lobbying Apple to boost stock repurchases; and pummeling eBay's directors in a nasty proxy fight to unlock shareholder value by spinning off its PayPal division. And in a live smackdown on business cable channel CNBC, Icahn squared off with rival hedge fund manager Bill Ackerman over nutritional products marketer Herbalife.

While the brash billionaire's 53-year Wall Street career has been underscored by highly publicized verbal tussles, they've mostly been initiated and largely controlled by the New York-born, Ivy League-educated hedge fund manager, dating to the 1970s, when he was a pioneer in corporate "greenmailing" -- buying stock in undervalued companies, then selling stakes back at a premium.

But in denying a Wall Street Journalreport that he's been targeted for insider trading, along with pro golfer Phil Mickelson and golf course owner and Las Vegas gambler William "Billy" Walters, Icahn, for now, appears to be in hunker-down mode.

Icahn declined an interview with USA TODAY, but in a Monday e-mail statement, he denied allegations that he had passed on stock tips to Walters, who the Journal said passed on information to Mickelson.

"We are always very careful to observe all requirements in all of our activities," Icahn said. "We believe that making inflammatory and speculative statements, especially when we have had an unblemished record for 50 years, is completely irresponsible on the part of The Wall Street Journal."

Both Walters -- an acquaintance of Icahn -- and Mickelson -- who says he has never met the former corporate raider -- have denied any wrongdoing.

According to the Journal, the insider-trading probe stems from stock trades involving several companies, including Dean Foods and Clorox. Icahn said in his e-mail that he's never been involved in any way with Dean Foods.

Icahn amassed a 9% stake in Clorox in 2011 before making a $10.2 billion hostile tender offer. By December, Icahn abandoned his bid for the household products maker. (The Associated Press says the FBI and Securitiesand Exchange Commission are analyzing trades Mickelson and Walters made involving Clorox shares at the same time Icahn was mounting his takeover bid).

Wall Street observers say based on news media reports, there's little evidence that Icahn was involved in insider trading.

"The government has to show that there was a breach of fiduciary duty -- and Icahn wasn't a fiduciary or an insider at Clorox," says law professor John Coffee, director of Columbia University's Center on Corporate Governance. "The other possibility, and it's somewhat tenuous, is that he was misappropriating information from the hedge funds he was putting into this deal. But every day of the week, hedge funds tell each other of their plans."

Ahead of Icahn's bid, there was heavy trading in Clorox stock options. Andrew Wilkinson, a market analyst at Interactive Brokers, says the July 2011 surge in Clorox call options represented an unusual wave of demand. "Traders get their teeth into these rumors," and jump in, Wilkinson says. He cautions that the option surge doesn't automatically signal anything improper. "People see somebody else doing something, and they want a piece of it."

Still, those who had inside information and bought Clorox calls ahead of Icahn's takeover bid would have been taking a major risk. "You're leaving a large footprint, and it's very likely you'll get caught," Wilkinson says.

Coffee notes that Icahn has always been "exceedingly careful" in his business dealings. "I've watched him for 45 years," Coffee says. "It would be a dramatic departure for him to cross a legal line. He's constantly pushed the envelope, but he always stays within the boundaries of the law."

Last month, Icahn chided investment titan Warren Buffett after Buffett abstained from voting against an executive compensation plan at Coca-Cola that some considered excessive. Buffett is a big Coke shareholder. "If a man of Warren Buffett's stature openly states he abstains from voting on plans he doesn't agree with because he 'loves' management, and he doesn't want to 'express any disapproval,' how can we expect other board members in this country to voice their opinions, especially if they are opposed to the CEO's interest?"

Shares of Icahn Enterprises, fell 4% to $98.29. The stock is up 126% over the past three years.

Contributing: Kevin McCoy




AP


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Source: USA Today


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