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) - Get Report, is sitting on a $66 million paper loss on an ill-fated short bet against USG (USG) 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) - Get Report

, we were losing over $30 million before finally realizing a $130 million profit when the company went to zero," he said.

A 10-K filing filed March 2005 shows that at the end of 2004, American Real Estate Partners had a short position of $2.5 million shares in an unnamed bankrupt company now believed to be USG, the only publicly traded wallboard company to declare bankruptcy since at least 1986, according to the

Los Angeles Times

. USG filed for Chapter 11 in 2001, but plans to emerge from bankruptcy this year.

Certainly a short position in USG would have been a painful one with the stock rising since 2004. However, Icahn has not covered his short at this point, says the source familiar with the matter, which means that the loss is only on paper.

A short-seller borrows shares of a stock and sells them on the expectation the share price will decline and can be purchased later at a lower price. When the stock's price rises instead of dropping, the short-seller loses money because he must purchase the shares at a higher price than he sold them.

When the

Bloomberg

article was released on Friday, the stock was trading at $102, but dropped since then to around $96, possibly as a result of Icahn publicizing his negative opinion on the sector. USG was recently down 3.8% to $93.

A call to USG was not returned.

Separately, Icahn was in the news Monday when he

disclosed the purchase of 2.5 million shares of

BJ's Wholesale Club

(BJ) - Get Report

, boosting the stock price by 4.5% to $30.13. The stock has run up in recent months amid buyout rumors, but was recently down 0.5% to $29.45 after reporting declining quarterly profits.

The regulatory filing Monday also revealed that Icahn has taken new positions in

Federated Department Stores

( FD),

Lear

(LEA) - Get Report

,

Cendant

( CD) and

Lions Gate Entertaintment

(LGF)

; he has doubled his stake in

Tyco International

(TYC)

and remains heavily invested in

Time Warner

(TWX)

and

Blockbuster

( BBI).