Icahn Hits a Wall

A source familiar with Carl Icahn's operations confirmed what the billionaire investor would not: Icahn's publicly traded company, American Real Estate Partners(ACP Quote), is sitting on a $66 million paper loss on an ill-fated short bet against USG(USG Quote) initiated in late 2004.

Shares of USG, a Chicago-based building-material manufacturer specializing in wallboards, soared from the mid-$30s in December 2004 to nearly $122 in April 2006.

Rumblings of Icahn's short stake in USG started last week when Bloomberg reported the $66 million loss and speculated USG was the target.

In an exclusive interview with TheStreet.com, Icahn neither confirmed nor denied USG was the target. He did, however, openly criticize USG's stock. That being said, without specifying the company, Icahn confirmed there is a $66 million paper loss from a short sale, and expressed a negative view on the wallboard sector, suggesting excess supply could depress earnings.

"Reports show that 20% more supply is coming on stream, and this is in the face of a possible slowdown in housing," he said. Finally, he pointed to other problems faced specifically by USG. "People make a mistake in evaluating what they are paying for USG today because they do not take into account the $4 billion that will shortly have to be paid for the asbestos settlement."

According to the source familiar with his operations, Icahn believes that "USG will be one of the best short sales" and Icahn himself discussed the need for patience in making bets against individual stocks.

"During my career, I've entered a number of short sales and generally been quite successful, but it takes a bit of time. In Conseco(CNO Quote), we were losing over $30 million before finally realizing a $130 million profit when the company went to zero," he said.