The Morning Risk Report: Carl Icahn Pays $2 Million to Settle SEC Investigation Tied to Short-Seller Report

Good morning. Carl Icahn and his company agreed to pay $2 million to settle civil charges from the Securities and Exchange Commission that he failed to disclose extensive borrowing against the company’s shares.

• A small fine. The settlement is modest compared to the damage done to his company, Icahn Enterprises and to Icahn’s personal fortune, by a short-seller report last year. Since the report, shares of the company are down 68%, it slashed its dividend by half and was forced to renegotiate terms of his loans. Icahn owns around 85% of the shares of the company, and the selloff wiped more than $8 billion from his personal holdings.
   
• Battle with short-seller. The settlement is the latest fallout from a public assault on Icahn by short-selling firm Hindenburg Research, which also knocked more than $10 billion—or 68%—from his company’s valuation, as of Friday’s close. Icahn, who for decades bullied the boardrooms of corporate titans like Texaco, Dell and Apple, has spent the past year sparring with lenders and regulators in the wake of Hindenburg’s claims.
   
• The report. Hindenburg’s report focused on Icahn Enterprises, Icahn’s publicly traded vehicle. The company serves as something of a war chest for Icahn’s activist campaigns and broader market bets, as well as holding assets like an oil refinery, aftermarket auto parts chains and commercial real estate. Hindenburg’s report alleged the company was overvalued, inflated asset marks and paid an unsustainable dividend.

Bankruptcy racketeering lawsuit against law firms, ex-judge dismissed.

A federal judge dismissed a civil racketeering complaint accusing law firms Kirkland & Ellis and Jackson Walker of conspiring with the nation’s former top bankruptcy judge to rig his Houston court. 

U.S. District Judge Alia Moses on Friday ruled that an unhappy litigant, Michael Van Deelen, had failed to show he was harmed by the alleged scheme. Moses said she dismissed the case “with some consternation” after finding that Van Deelen lacked standing to sue the two law firms, then-judge Jones and his longtime romantic partner, who worked as a bankruptcy lawyer on major chapter 11 cases they brought to his court.

• Former New York Rep. George Santos, who was accused of fabricating much of his life story to win public office, pleaded guilty Monday to wire fraud and identity theft and admitted to a raft of fraudulent conduct including embezzling funds from donors.
   
• Tesla is set to pay lower tariffs on electric vehicles exported from China to the European Union after the bloc revised penalties for carmakers amid an investigation into allegedly unfair subsidies from Beijing.
   
• Chinese property developer Kaisa Group Holdings said it has made significant progress in restructuring its offshore liabilities, enabling the beleaguered company to offer billions of dollars in new debt and convertible bonds.

Harley-Davidson bows to activist pressure, changes DEI policy.

Harley-Davidson is the latest major company to make changes to its diversity policy after online pressure started by conservative activist Robby Starbuck.

The motorcycle maker said Monday that it will no longer participate in a scoring system by the Human Rights Campaign, an advocacy group that gives companies scores based on LGBTQ+ inclusion in their workplace. Harley-Davidson said it would review all its sponsorships, saying that it will focus on retaining its “loyal riding community.” And it will no longer have spending goals to buy from suppliers owned by minorities or women.

Companies haven’t abandoned sustainability, but they are talking about it less.

Companies are talking less about sustainability in earnings calls and marketing materials, but they are mentioning it nearly as frequently as ever in their financial reports and disclosures.

Business leaders have faced political and legal pressure to avoid overstating green claims or appearing to prioritize sustainability initiatives over profit. Last year, a Wall Street Journal analysis found a steep dropoff in mentions of “ESG,” “DEI,” and other related terms in corporate earnings calls.

But a new analysis of hundreds of thousands of public and private companies complicates the picture. Companies’ financial disclosures are mentioning sustainability almost as much as ever, with the trend line showing a steep climb between 2019 and 2021 before flattening out.

• Danish shipping line A.P. Moller-Maersk said Monday it would stop accepting Canada-bound cargo that needs to be moved by rail, the latest move by freight operators to brace for a possible work stoppage later this week at Canada’s two main railroads.
   
• U.S. companies that struggle to repay their below-investment-grade bonds and loans are increasingly squeezing concessions from lenders by pitting them against one another.
   
• A glut of natural gas is depressing prices and prompting fresh cutbacks in America’s drilling fields, despite one of the hottest summers on record.
   
• Sweden’s central bank cut its key interest rate for the second time this year and indicated it is likely to lower borrowing costs again as a faltering economy threatens to push inflation further below its target.

• Mike Lynch, one of the U.K.’s most celebrated tech entrepreneurs, was declared missing after his luxury yacht sank off the coast of Sicily. Lynch lived for years under the cloud of a criminal investigation by U.S. prosecutors alleging that the value of the company he sold to Hewlett Packard for $11 billion was fraudulently inflated.
   
• President Biden exited the stage at the Democratic National Convention Monday, pointing to his joint accomplishments with Vice President Kamala Harris and warning of the ramifications of a second term under former President Donald Trump.
   
• The $13 billion that Elon Musk borrowed to buy Twitter has turned into the worst merger-finance deal for banks since the 2008-09 financial crisis.
   
• To woo its new chief executive, Starbucks offered a $10 million cash signing bonus and millions more in stock-based compensation. The coffee giant also didn’t insist that he move to the company headquarters in Seattle.
   
• New flashpoints are emerging in the volatile South China Sea—bringing confrontations involving Beijing closer to the shores of a key U.S. ally in the region.