Why Icahn Enterprises stock is down more than 11% today

Actions of Icahn Enterprises LP (IEP -11.84%) fell sharply on Monday after news that shareholder dilution would take place, adding to the sell-off that has been taking place since February. Indeed, data from S&P Global Market Intelligence indicates that as of 2:51 pm EDT Friday, Icahn Enterprises stock is 11.6% lower, dragging the ticker to a two-decade low.

Other factors, of course, contribute to this continued weakness.

The Icahn Enterprises saga continues

In the simplest terms, Icahn Enterprises is a holding company made up of several private and publicly traded for-profit entities. Although he is neither its chairman nor CEO, infamous activist investor (and majority shareholder) Carl Icahn largely runs the organization.

Today’s crash is the result of a Securities and Exchange Commission (SEC) filing that reveals Icahn Enterprises plans to sell up to $400 million in newly issued shares of the stock. Although the money raised by this sale is earmarked for “potential acquisitions and general limited partnership purposes” that would theoretically benefit the existing shareholders of this $6.6 billion company, the market fears that it will actually dilute , current shareholder positions.

That said, the timing of the decision is also just a bad picture.

If the name rings a bell, there are a number of potential reasons. The most recent of which is the fine recently levied by the US Securities and Exchange Commission against Icahn Enterprises, as well as Carl Icahn himself, for failing to disclose that he personally benefited from margin loans that used his own company stock as guarantee. While the matter only cost Icahn $2 million in civil penalties, it still raises red flags.

Icahn Enterprises is also in the middle of a legal tangle with Nate Anderson, the founder of Hindenburg Research, a “forensic financial research” company that makes short-selling recommendations based on findings that appear irregular or even illegal. In May, Anderson published a report suggesting that Icahn inflated the valuation of his assets to continue funding his hefty dividend payments. Carl Icahn rejects the premise of the Hindenburg report, but stock action since then suggests that at least some investors are considering the possibility that Anderson’s conclusions are correct. Today’s announcement underscores their concern

Whatever the case, this kind of drama leaves stocks extremely vulnerable to even the slightest hint of trouble. Today’s apparently dilutive announcement is one such clue.

Just stay away

And this is probably the best food after the Monday meltdown. Icahn Enterprises may have compelling new investments lined up. Its oversized dividend could be sustainable. Its enigmatic symbol could be an innocent victim of unfair assumptions. No one knows… at least not yet.

From a risk management perspective, there isn’t enough potential to justify the risk that comes from so many unknowns. Drama is usually unwanted with any investment, if only because it’s a distraction. It’s even worse when some of the concerns expressed may turn out to be merited.

Put simply, most investors should not try to catch this falling knife. There’s a reason this stock has been falling for over a decade now, even if it’s still not entirely clear What that reason is.