Carl Icahn, a star corporate raider brought down to earth

Decades ago, Carl Icahn gained a formative insight from reading the American novelist Theodore Dreiser. The billionaire investor was absorbed by two of Dreiser’s novels, The Financier and The Titan, which chronicle the rise of industrialist Frank Cowperwood.

In a decisive financial stand-off, Cowperwood’s adversaries plot to have a bank call in his large personal debts. But unbeknown to them, Cowperwood holds a large reserve of assets that “could be drawn on and hypothecated”. Were it to be deployed, Dreiser writes, “these men should see at last how powerful he was and how secure”. Cowperwood prevails and Icahn says he learnt an essential lesson: always have a “war chest” of cash.

The 87-year-old is famed for his decades spent orchestrating shareholder fights with companies including Texaco, Trans World Airlines, Apple and McDonald’s. These battles have reshaped US financial markets by changing how corporations are run, steering their management towards the interests of large stockholders like Icahn.

For nearly half a century, the mere mention of his name has struck terror in the hearts of corporate chieftains and moved markets. But much of Icahn’s power emanated from an obscure, thinly traded public vehicle called Icahn Enterprises that has largely gone unexamined.

This month, Icahn was besieged by a sceptic named Nathan Anderson who, in a report published by his firm Hindenburg Research, uncovered heavy debts the investor had taken against his Icahn Enterprises shares. The revelation has exposed a surprising vulnerability in one of the world’s wealthiest financiers. Icahn has vowed to “fight back”, but his plans to secure his empire remain mostly a mystery.

In recent years, Icahn made ever-larger bets against a fast-rising market to protect his investments from a future crash. Instead of building an emergency reserve, the trades have led to nearly $9bn in losses. When confronted with those losses last week, a circumspect Icahn admitted: “Maybe I made the mistake of not adhering to my own advice in recent years.”

The predicament has shocked many senior figures on Wall Street. “It’s one of those moments in a crisis where you go, ‘Holy shit, everything I thought about somebody was wrong,’” said the head of a large financial firm.

Bill Ackman, a billionaire investor whom Icahn tussled with in a legendary fight over the fate of a multilevel marketing company, offered the most brutal assessment. “Icahn’s…