Hedge Fund Sues Icahn, Claiming He ‘Harms’ Shareholders

Aug 17 2009 | 2:57am ET

Some will call it karma. Carl Icahn is calling a lawsuit filed against him and a company he controls by a hedge fund “ludicrous” and “a waste of time.”

Q Investments has sued the famed activist investor and hedge fund manager, alleging that the great champion of shareholders’ rights is hurting the shareholders of XO Holdings, a telecommunications company that he owns more than half of. According to Q’s R2 Investments fund, which owns 8.8% of XO, Icahn ignored three possible buyers of the struggling company, instead choosing to refinance its debt by buying $780 million in preferred stock.

That move certainly helped him out, Q claims, giving him more than 80% of the company’s shares and allowing him to use its losses to write off taxes at his other business. But it burned the other shareholders in a big way: XO’s stock has lost nearly 80% of its value since the first approach, according to R2, and now Icahn, who has since seen his stake fall to 53%, is seeking to buy the whole company on the cheap.

Q managing member Geoffrey Raynor told The Wall Street Journal that, despite spending “so much time advocating shareholder rights,” Icahn’s moves with XO “harm shareholders.”

Icahn is certainly more used to being the author of such barbs, rather than their target. In recent years, Icahn has been a thorn in the side of many of his portfolio companies, and most recently has battled hedge fund Steel Partners over its conversion of its flagship hedge fund into a publicly-traded partnership. But this is not the first time he’s done battle with Q, which four years ago successfully blocked hi effort to buy XO’s wireline assets, which would have stripped the company of one of its only profitable businesses.

XO CEO Carl Grivner, who is also named in the suit, said the company is seeking to have the complaint dismissed. Talking to bidders would have been “a waste of time,” because financing was unavailable for telecom deals at the time, he told the Journal.


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