Wall Street is a kind of casino, let’s start with that.
You bet that a company will do well - or not.
The “or not” type of bet is called a short in Wall Street lingo. You are betting against the house - so to speak.
There’s nothing illegal - or even immoral - about any of this. It’s capitalism.
And, "house rules."
But what if the fix is in?
One of Wall Street’s highest rollers - Bill Ackman of Pershing Square Management - has been accused of the equivalent of counting cards at the Bellagio.
To the tune of $1 billion.
In order to destroy - and profit from the death of - a company he’s got a personal beef with.
That company is the supplement supplier Herbalife, which Ackman has publicly accused of being a “pyramid” scheme.
But classic pyramid schemes sell no products. They are defined by the con of getting new members to sign up (and pay up) and having those new members repeat the process. Money changes hands, not goods. The pyramid collapses when not enough new suckers can be found; when there are too many people collecting money and too few people ponying up.
Herbalife sells a line of products, including vitamins and supplements and weight loss shakes and skin care products. These products are sold via independent distributors (multi-level marketing) just like Mary Kay Cosmetics or Amway.
The fact that products are sold undermines Ackman’s “pyramid” claims. If goods change hands, it’s capitalism - not a con.
And his profit motive for making such claims calls into question everything he says - and is revelatory regarding what he's done.
Ackman’s hedge fund - Pershing Square Management - shorted Herbalife stock, banking on the share value plummeting after a very public three-and-half-hour rant (complete with slide show) against the company delivered at AXA Equitable Center in Manhattan on December 20, 2012. Herbalife stock went down about 10 percent, but didn’t crash as Ackman had hoped.
As Ackman had banked on.
This has cost Ackman’s fund a buttload of money.
But unlike an inept card counter at the Bellagio who lost to the house he tried to rip off, Ackman isn't skulking back to his seedy motel room to lick his wounds. He's incensed that his shady tactics haven’t brought down Herbalife or lined his pockets as he had hoped.
And so, he’s doubled down on his shady tactics.
These include allegations (now established as fact) that Ackman covertly hired a shill “whistleblower” - disgruntled former Herbalife employee Giovanni Bohorquez, as it turned out - and agreed to pay him $3.6 million to provide manufactured evidence against Herbalife, in order to trigger FTC and SEC investigations of the company. The New York Times subsequently published a hit piece instigated by this “former employee” - whose identity was kept secret at the time of the article’s publication.
ABC news did an expose of this back in 2014, two years after Ackman’s short fell flat. Bohorquez was interviewed on camera and denied being paid anything by Ackman, a claim that proved to be… er... false.
Channeling the ghost of the late great Johhny Cochran, Bohorquez subsequently defended his on-air claim that he was “not getting a benefit” from his secret sugar daddy by making the startling claim that he “was not looking at using it.”
Bohorquez had not yet “collected” the money Ackman had agreed to pay him.
He began “collecting” the payments - in $20,000 installments, up to $250k per year for ten years, with the possibility of a five percent “raise” on top of that - after the ABC News interview aired.
Shakespeare was right about lawyers.
And the lobbyists.
Which role Ackman has personally assumed as part of his increasingly desperate-looking jihad to make his bad bet good. He wheedled Rep. Ed Markey (D-Mass) to write threatening letters to Herbalife management andpersonally badgered federal prosectors to go after the company. In addition, he hired Global Strategies - a heavyweight PR firm - to conduct "opposition research" on Herbalife. He has also taken out ads in newspapers and other media, established a 1-800 complaint number and - allegedly - attempting to hire other"whistleblowers."
Reportedly, Ackman has spent at least $20 million to date attempting to undermine Herbalife.
None of the above has born fruit - as far as bringing down Herbalife (and thereby, bringing in the $1 billionAckman’s hedge fund hoped to “earn” as a result).
Ackman, like any honest gambler, has every right to place his bets as he likes. But when the bet is fixed, there’s a problem.
He has cost the company - its shareholders - $90 million in legal fees and much more on top of that in the form of reduced stock value.
Whatever Ackman’s motives - whether charitable (he claims to be going after Herbalife because he considers their business model shady) or pecuniary, the bottom line is he’s playing, as Gomez Addams might have styled it, dirty pool.
Paying “whistleblowers” with an obvious ax to grind and who stands to become multi-millionaires as a result of their squealing, siccing the feds on a company whose stock you hold and intend to short… these seem like solid reasons for taking a look at Ackman rather than Herbalife.