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Billionaire activist investor Carl Icahn claims that his short bet against malls may be manipulated against him.
Icahn has had a short position against commercial mortgage-backed securities through the use of credit default swaps, or CDS, for the last four years.
Icahn now claims that counterparties are conspiring against him, according to a WSJ report on Saturday that cited an interview with the 87-year-old billionaire.
“In many instances, it’s just a rigged market for billions and billions of dollars,” Icahn told the WSJ.
The bets against the malls used CDS, financial instruments that are basically insurance policies insuring bonds against losses, tied to an index tracking bundles of loans to malls and other commercial properties. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations.
While the mall bet paid off during the COVID lockdown and Icahn reportedly made about $900 million in 2020, more recently it hasn’t been working, according to a WSJ report on Saturday.
Last year, Icahn Enterprises’ (NASDAQ:IEP) CDS positions took a $742 million paper loss, according to corporate filings, and the firm’s short credit positions have also been dropped so far in 2023, the WSJ said.
Icahn suggested that the recent market manipulation relates to Crossgates, a large shopping facility outside of Albany, N.Y. The loans for the mall went into default this spring, and the debt was moved to be sold at auction under Icahn’s approval, according to the WSJ.
Days before the debt was to be sold, the loan’s servicer received a stalking horse bid for $162 million from hedge fund Cannae Portfolio Advisers, the WSJ said, citing documents the publication viewed. Cannae’s bid was the highest, $40 million higher than the next closest of seven offers total.
The bid was so high that three Crossgates securitizations avoided losses that would trigger a CDS payout tied to certain tranches of the debt, according to the WSJ. The debt was sold to Cannae and Morgan Stanley (MS).
Icahn argued that the price paid was so much higher than any other offer that it may be market manipulation by someone on the long side of a CDS trade, the WSJ said.
Morgan Stanley (MS) declined to comment to the WSJ.
Icahn’s claims come as the billionaire investor has come under fire since early May, when short seller Hindenburg Research published a short report about Icahn Enterprises (IEP). Icahn’s shares have plunged about 65% since May 1, and Icahn Enterprises announced in early August that it was cutting its quarterly distribution to $1 from $2 previously.
