
After Big Bet, Hedge Fund Pulls the Levers of Power - kapilkale
http://www.nytimes.com/2014/03/10/business/staking-1-billion-that-herbalife-will-fail-then-ackman-lobbying-to-bring-it-down.html?hp&_r=0
======
frankc
This might be the most comically wrong piece of journalism I've read in my
entire life. Ackman should be given a medal for what he's doing to this snake-
oil selling pyramid scheme. He has even disavowed any personal profit from his
investment. He hasn't made any secret of what he's doing. Short selling is a
hugely important market mechanism that allows these fraudulant companies to be
sussed out. If all the lobbying is disgusting to you, be disgusted with the
system that requires it, not Ackman for playing the game. You don't think
Herbalife is doing the same lobbying? I almost can't believe this article was
published in the New York Times and not on a late night infomercial selling
false hope to the downtrodden.

~~~
wpietri
If Herbalife crashed tomorrow, I would open the champagne. I think it's
exactly as exploitative as Ackman has said. I think they -- like most network
marketing efforts -- are in the business of selling hope to well-meaning,
desperate suckers. It's a shame that the article doesn't cover any of that.

That said, I think the article raises a legitimate concern. The ends do not
justify the means. Astroturfing, dubious involvement of community leaders and
government officials, large checks, letters from 'average citizens" who don't
recall writing: all bullshit.

I agree that we should hate the game. But the reason we should hate it is that
when people play it, they weaken the foundations of our society. If we only
hate that when the wrong people do it, then we're part of the problem.

~~~
malandrew
By supporting people who play the game and play it with vigor, we're not only
supporting but strengthening the mechanisms on which the game is based.

Every single one of the organizations which helped in the lobbying effort all
have an incentive to preserve the problem to which they themselves are the
solution (credit: Clay Shirky). Lobbyists and every organization described in
this story are all trying to preserve all the problems with our current
system. Without those problems, they'd all be out of a job tomorrow.

The fact that there is tons of money made playing this game gives all the big
players incentive to hire the services of every institution and individual
that makes a living off this game.

I'm all for Ackman doing something noble, but the profit motive is only
serving to strengthen all the institutions that we should be trying to
dismantle in favor of a more informed populace with better means to
participate directly.

If I had to choose better the existence of a scummy enterprise like Herbalife
and a totally screwed up lobbying system, I would definitely choose keeping
around Herbalife as the lesser of two evils.

If only Ackman had some way to hold a short position on the power institutions
running Washington D.C.

~~~
mcv
If Herbalife is scum (I have no personal opinion on that subject), then honest
protests, lobbying and information should be enough. Making it a profit-
oriented thing discredits the entire endeavor.

Besides, if you can profit from destroying a company for noble reasons, what's
to stop hedge funds from destroying innocent companies in a similar way?
Although maybe that already happens a lot.

~~~
wpietri
Having argued in favor of the article, let me give some props to Ackman:
honest protests here aren't enough. Scams of all sorts and this one in
particular work by taking advantage of the vulnerable. Part of what makes
people vulnerable is a lack of political power.

Given that our government is a pay-to-play enterprise, I'm glad that somebody
is paying to go after Herbalife. If people are going to destroy something for
profit, I'd rather it were an exploitative company like Herbalife. Rather
than, say, a perfectly good mattress manufacturer:
[http://www.nytimes.com/2009/10/05/business/economy/05simmons...](http://www.nytimes.com/2009/10/05/business/economy/05simmons.html?pagewanted=all&_r=0)

------
rayiner
Fighting herbal supplement companies and for profit colleges? Is this guy
supposed to be the villain, or a hero?

~~~
pessimizer
He's a hero in my book. He shorted a company because he vastly overestimated
the interest that the government and the business community would have in
exposing and rectifying an open scam that preys on the ignorant. Now he has to
become an activist to save that investment.

Money where his mouth is.

His history with MBIA:
[https://en.wikipedia.org/wiki/MBIA](https://en.wikipedia.org/wiki/MBIA)

"Ackman [...] called for a division between MBIA's bond insurers' structured
finance business and their municipal bond insurance side, despite statements
from the insurance companies that this would not be a viable option.

"He argued that the billions of dollars of CDS protection MBIA had sold
against various mortgage backed CDOs was going to be a problem. He also argued
that it was not proper for MBIA, which was legally restricted from trading in
CDS, to instead do it through a second corporation, LaCrosse Financial
Products, which MBIA described as an 'orphaned subsidiary.' Ackman bought
credit default swaps against MBIA corporate debt as a way to bet that it would
crash. When MBIA did, in fact, crash as the financial crisis of 2008 came to a
head, he sold the swaps for a large profit. Ackman reportedly attempted to
warn regulators, rating agencies and investors about the bond insurers' high
risk business models."

------
unsigner
_Herbalife, a company that sells vitamins and other health supplements through
independent distributors, many of whom are lower-income Latinos or African-
Americans._

That's one way to put it, yes.

~~~
Maascamp
What's another way?

~~~
girvo
Pyramid scheme selling entirely unproven crap.

~~~
MaysonL
The same could be said of any religious organization, and sometimes is, with
about as much validity (i.e.: somewhere between a little and a lot).

------
mathattack
_The team includes lobbying firms run by two former members of Congress: Toby
Moffett, a Democrat who once represented Connecticut, and Robert S. Walker, a
Republican from Pennsylvania. Mr. Ackman also hired firms run by former top
White House aides for President Obama and President Clinton. Jim Papa, who
handled legislative affairs for the Obama White House, also joined the effort,
with his firm, Global Strategy Group, a longtime consultant to Mr. Ackman._

Reading stuff like this really gets me sick to my stomach.

------
coldcode
I don't care much for Herbalife, but people like this disgust me, covering up
a naked profit grab with an air of concern for others. Pathetic. Do it without
making a profit and I might listen or even agree with you. Do it for the money
and it's clear you don't care a whit what happens as long as your profit is
assured. But historically wealthy business people have always convinced,
conned or even bribed people (you can bribe people without money) to get what
they want. Think late 19th century "robber barons". It's nothing new today,
except lobbying is even easier since it's also a big business today. Not a big
fan of Icahn either, he bets on companies and then uses any means necessary to
force the company to do what he wants in order to profit. The spirit of
Rockefeller lives on.

~~~
erikpukinskis
To play devil's advocate... maybe shorting stocks is actually a sensible way
to fund activism against unethical companies. It's not unprecedented. The "No
win no fee" structure common in class action lawsuits is roughly equivalent.

If someone wanted to actually put this into practice, the thing to do would be
to create a fund and identify several companies doing illegal things, short
the stocks, and then launch campaigns against them.

I'm not sure if the math works out though. With traditional VC your wins are
orders of magnitude larger than your losses, which is what allows the
portfolio to succeed. I don't know enough about shorts to know whether a
similar structure could be created.

~~~
kkowalczyk
Acman's behavior is not bad because he's shorting Herbalife.

It's bad because after he bought short position, he's using his money and
influence to crash Herbalife, by any means necessary, buying fake concern from
various "community" groups, trying to influence government officials to start
investigation etc.

Metaphorically speaking, he's a corporate terrorist, trying to cause distress
in a company in order to profit from it.

And let's be clear: he doesn't care what happens after (potentially temporary)
drop in Heralife's stock price.

He's end-game is not fixing Herbalife via some government action, all he needs
to make his billions is temporary drop in stock price caused by FUD that an
investigation would create.

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not_paul_graham
Whenever big money is at play, there are bound to be players that will try to
influence the market on either side of the trade, so I'm not sure why the NYT
reporters are being so one sided in their coverage. One of the other big
players on the other side of this trade is Carl Icahn (who owns nearly 15% of
the stock) so there is pretty much equal influence if not more to negate
whatever Bill Ackman can do. Other investors on the other side of Ackman
include George Soros as well as William Stiritz, the CEO of Post Holdings,
maker of Raisin Bran.

What I would like to add though is that Bill Ackman is extremely thorough
before going all out on a bet of such proportions. If he wasn't he wouldn't be
in the business any longer than average Joe. Bill Ackman has acknowledged
losing $400 million to $500 million on his short position, and I really don't
think he is stupid enough to want to lose more money just to stroke his ego.

Here is one thing that the author states in the article:

 _Mr. Ackman once made a similar bet against the bond insurer MBIA, one that
reaped him and his investors a $1.1 billion return. In a book about his MBIA
wager called “Confidence Game,” the reporter-turned-financial analyst
Christine S. Richard chronicled how he fought with regulators for SEVEN YEARS
before his prediction that MBIA stock would “spiral downward” came true._

What this fails to take into state is that if the regulators had been more
diligent in following up, they could have helped reign in the massive toxic
CDO empire that companies like MBIA enabled that nearly tanked the global
economy a couple of years ago. Also MBIA did everything it could to malign
Ackman's reputation. He was under investigation for more than a couple of
years where he tried to convince the "rating agencies" Moodys, Fitch and the
like and the regulators about all that was wrong with MBIA and other such
companies. Confidence Game is a good book worth reading to understand how dumb
the regulators and rating agencies can be.

So ultimately Ackman probably knows more about this than the reporter or the
regulators because he binges on tons of information and is pissed that no one
is doing anything about it. Similarly to what happened with MBIA. I'd say that
he is going to this extent because he is beyond frustrated that others can't
see what he can see and he is trying to get others to do the research, and do
what is right. He has stated that he will stick to this as long as it takes
and so if there is an investigation, and they (Herbalife) come out clean, it'd
still be a losing bet for Ackman as he is mainly concentrating his $$ into
this trade.

If I had to put my money, I'd put it with Ackman, unfortunately I'm still
grappling with my student debt to be able to afford making these kinds of
bets.

In the grand scheme of things, I think Bill Ackman is more like David than
Goliath. Sure he has a couple of billion in the bank, but investors like him
are why corporate executives aren't partying like they used to in the
50s/60s/70s/80s and are becoming more accountable to shareholders (albeit very
slowly).

I'd go so far as to say that if Paul Graham was in the business of funding
hedge fund managers, Ackman would be one of his top picks from the applicant
pool.

Also to add more context:

Ackman outspent by Herbalife in lobbying battle [1]

 _Hedge fund manager William Ackman, who is betting $1.16 billion that
Herbalife is a fraud, spent $264,000 last year on lobbyists to press his case
against the company, according to government documents filed in recent weeks.

THAT AMOUNT IS DWARFED BY THE NEARLY $2 million Herbalife spent in 2013 on
federal lobbying as the nutrition and weight loss company fought the
billionaire investor's claims it runs a pyramid scheme. In an illegal pyramid
scheme members earn more for recruiting new members into the scheme than for
selling the products outside the network._

And Ackman isn't alone in thinking that Herbalife is a pyramid scheme [2].

Disclaimer: This is my opinion, and as such all I know about Ackman is from
the press, reading his report/book called "Is MBIA Triple A?", the book
mentioned in the article "Confidence Game", his talks/interviews/tv reports
and second hand articles on the web.

[1] [http://www.reuters.com/article/2014/03/09/us-herbalife-
idUSB...](http://www.reuters.com/article/2014/03/09/us-herbalife-
idUSBREA280OH20140309) [2]
[http://en.wikipedia.org/wiki/Herbalife#Pyramid_scheme_allega...](http://en.wikipedia.org/wiki/Herbalife#Pyramid_scheme_allegations)

~~~
gloverkcn
I agree that the article is disappointingly one-sided. Both sides of this case
highlight a lot of things that are going wrong with the country. Corporations
are more important than people and if you have money you get to live by a
different set of rules.

Bill is smart. He saw that Wendy's had a division that was taking off (Tim
Horton). A successful division can bring a lot of money into a company to
offset other struggling divisions, and provide fuel for further growth. Bill
invested in Wendy's, go them to spin off the division, getting bill a huge win
in the IPO, and then he dumped the Wendy's stock.

He is a new breed of corporate raider who wants to take as much money from a
company and then bail.

Bribing politicians to try and force a stock to collapse is market
manipulation and is illegal. If any of the hedge funds he told about the non-
public letter affecting a public company acted on that knowledge then that is
insider trading and illegal. Trying to convince other hedge funds to bet
against a stock could also be seen as a market manipulation (Since if the
other hedge fudges take positions against the price would drop).

If I were to open a betting pool in vegas on what hedge funds were going to be
shut down and the partners put in prison, and then bribed the SEC to
investigate to make sure I win am I in the wrong? Or am I just a savvy
investor?

~~~
yummyfajitas
_If any of the hedge funds he told about the non-public letter affecting a
public company acted on that knowledge then that is insider trading and
illegal._

Insider trading is when a person _inside_ the company releases nonpublic
information to people who trade on the basis of that information.

Are you asserting that Ackman is an Herbalife insider?

~~~
mynewwork
That is absolutely not true. Any person can be guilty of breaking insider
trading rules. In this case, Ackman, the person who shared the information
with Ackman, and any of the hedge funds which acted on that information could
all be liable.

~~~
yummyfajitas
Why do you believe an insider shared information with Ackman?

------
candybar
This seems like a good balancing act. The levers of power are already
available for crooks trying to prop up billion dollar empires. Why shouldn't
they be available for those who are trying to expose the crooks and take them
down?

------
javert
People in _every_ sphere of activity (business, etc.) will find _every_ way to
exploit the government (and thus other people), and do so.

Two options:

(1) End independent spheres of activity

(2) Fix the exploits

Option #1 is an authoritarian state, option #2 is a state that recognizes
individual rights (i.e. non-aggression) in principle on every issue.

------
sharemywin
The problem is there are already alot of rules setup to help the little guy
from getting taken advantage of. goverenment required return policies.
multiple states require you to register your business opportunity. rules
aaginst front end loading. When Amway got sued the industry cleaned up it's
act alot. Also, alot of ditributors are people that buy the product at
"wholesale" or a more reasonable price. Now why you think your going to make
lots of money selling something everyone else is selling flappy bird knock
offs I'm talking to you.

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jgalt212
My problem with Ackerman's actions is he's not only going after the bad actors
(as he's perceived them) but will cause a ton of collateral damage (Herbalife
shareholders).

And on top of that nonsense, thanks to the carried interest tax loophole,
Ackerman will pay very low taxes on his shenanigans.

[http://en.wikipedia.org/wiki/Carried_interest#Taxation_of_ca...](http://en.wikipedia.org/wiki/Carried_interest#Taxation_of_carried_interest)

~~~
MartinCron
Herbalife shareholders are people trying to profit from a predatory pyramid
scheme. How are they _not_ bad actors?

~~~
asdf3
Apparently having _no liability_ is no longer enough and we need to call stock
holders victims.

~~~
MartinCron
First they came for the Herbalife shareholders, and I didn't speak up because
I wasn't an Herbalife shareholder.

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adamnemecek
tphyahoo: you are shadowbanned.

