Margin calls and leveraged executives: Former billionaires underwater when market changed

The thing these individuals have in common? They’ve been forced to sell their slumping US-listed shares after they pledged them as collateral for personal loans.

The practice of pledging shares has boomed during the past decade as equity markets surged amid record-low interest rates. Nearly half of US chief executive officers have used the technique to secure loans, giving them access to cash without shrinking their stake in the business they’re running.

But when things sour, it can backfire spectacularly.Take Tellurian Inc. co-founder Charif Souki, once America’s best-paid executive. Last year, lenders to the one-time billionaire seized 25 million shares of the Houston-based natural gas firm that he had pledged in 2017 to secure loans for real estate investments. Worth about $250 million at the time of the pledge, they were sold for just $37 million after Tellurian’s stock hit a three-year low following the notification that virtually all of Souki’s stake had been seized.

“The whole thing can unravel quite quickly,” Jason Zein, a finance professor at the University of New South Wales’ business school, said on share pledges, which are often sensitive to fluctuations in interest rates. “If you’ve pledged at market highs, you could still be under water.”

Souki makes up the bulk of at least $50 million in pledged US stock sales since the start of last year, with the latest transactions filed in the past few weeks, according to data compiled by Bloomberg. A spokeswoman for Tellurian declined to comment, while a representative for Souki didn’t respond to a request for comment.

The most devastating part of pledged share sales for executives is that they’re often forced to…