What happened

Shares of Icahn Enterprises (IEP -0.99%) were falling this week, according to data from S&P Global Market Intelligence. The publicly traded investment fund run by well-known investor Carl Icahn was the subject of a short report this week from Hindenburg Research. As of 10:14 a.m. EST on Friday, May 5, shares of Icahn Enterprises are down 30.2% this week.

So what

You can think of Icahn Enterprises as a publicly traded investment fund. Icahn and his family own 85% of the shares outstanding, but the other 15% is publicly available to purchase, allowing individual investors to invest alongside a Wall Street legend.

However, the high-profile short-seller Hindenburg Research is alleging that Icahn Enterprises is grossly overvalued and using a "Ponzi-like" scheme to keep ex-investors happy. In its short report, it notes that Icahn Enterprises trades at a 218% premium to its stated net asset value (NAV), or the stated value of its investments.

Most publicly traded investment funds actually trade at a discount to their NAV, which Hindenburg believes means the stock is overvalued. Of the 500+ closed-end funds that are publicly traded, Icahn Enterprises trades at the highest premium to its NAV.

Second, Hindenburg is suspicious of Icahn Enterprises' at-the-money (ATM) stock offering program. An ATM lets a publicly traded company raise cash by selling new shares of its stock to public investors during trading hours, which is different than a traditional common stock offering, in which a company will raise a large block to a small group of investors.

Hindenburg says that Icahn Enterprises has been using this ATM to raise cash and pay an unsustainable 15% dividend yield to shareholders, which is Ponzi-like because it is raising money from new investors in order to pay existing ones.

Along with other problems, Hindenburg believes that the inflated NAV and unsustainable dividend payouts mean that Icahn Enterprises is headed for trouble in the coming years.

Now what

Carl Icahn shot back at Hindenburg, saying that this short report does not affect the liquidity of Icahn Enterprises and that he will defend the company against these "inflammatory assertions." However, he did not say that the report's claims were wrong.

Whether or not Hindenburg is right about Icahn Enterprises, this will be an interesting battle to watch in the coming quarters. Carl Icahn has been a Wall Street legend for decades, while Hindenburg Research is an up-and-coming short-seller that exposed frauds such as Nikola.

From an investment perspective, it is probably best to avoid Icahn Enterprises until all the issues brought up by Hindenburg are resolved.