Monday, March 10, 2014

After losing $1 billion bet, hedge fund is now lobbying to bring a company down

This really should be defined as a WTF moment.  From The New York Times:
WASHINGTON — At a Midtown Manhattan steakhouse last June, William A. Ackman, the activist hedge fund manager who had bet a billion dollars on the collapse of the nutritional supplement company Herbalife, offered his latest evidence to a handful of other hedge fund managers about why the company’s stock could soon plummet.
Mr. Ackman told his dinner companions that Representative Linda T. Sánchez, Democrat of California, had sent a letter to the Federal Trade Commission the previous day calling for an investigation of the company.
The commission had not yet stamped the letter as received, nor had it been made public. But Mr. Ackman, who had personally lobbied Ms. Sánchez and stood to profit if the company’s stock dropped as a result of the call for an inquiry, already knew what it said, and read from a copy of it that he had on his cellphone.

When Ms. Sánchez’s office ultimately issued a news release a month later, it was backdated as though it had been made public the day before Mr. Ackman’s dinner talk.

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Representative Linda T. Sánchez, Democrat of California, sent a letter to the F.T.C. asking it to investigate Herbalife. Mr. Ackman obtained a copy of the letter before it was made public.

The letter was a small hint of Mr. Ackman’s extraordinary attempt to leverage the corridors of power — in Washington, state capitols and city halls — for his hedge fund’s profit after taking a $1 billion financial position called a short, a bet that will pay off only if Herbalife’s stock drops.
Corporate money is forever finding new ways to influence government. But Mr. Ackman’s campaign to take this fight “to the end of the earth,” using every weapon in the arsenal that Washington offers in an attempt to bring ruin to one company, is a novel one, fusing the financial markets with the political system.
Others have criticized the business practices of Herbalife, a company that sells vitamins and other health supplements through independent distributors, many of whom are lower-income Latinos or African-Americans. But Mr. Ackman’s attack is unprecedented in its scale, and Herbalife officials strongly deny his accusations that the company is a pyramid scheme that stays afloat by constantly recruiting new distributors.
To pressure state and federal regulators to investigate Herbalife, an act that alone could cause its stock to dive, his team has helped organize protests, news conferences and letter-writing campaigns in California, Nevada, Connecticut, New York and Illinois, although several of the people who signed the letters to state and federal officials say they do not remember sending them, an investigation by The New York Times has found.
His team has also paid civil rights organizations at least $130,000 to join his effort by helping him collect the names of people who claimed they were victimized by Herbalife in order to send the leads to regulators, the investigation found. Mr. Ackman’s team also provided the money used by some of these individuals to travel to Washington to participate in a rally against Herbalife last month.
So, apparently this hedge fund guy Ackman decided to place a huge bet against Herbalife, hoping the company will collapse and probably make billions in profit for Ackman's hedge fund.  Herbalife does not collapse, and Ackman has lost a $1 billion dollar bet.  What does he do?  He calls on congressmen and lobbyists to persuade the federal government to investigate Herbalife, hoping such an investigation would shut down the company.  If Herbalife is shut down, Ackman's hedge fund still profits.  According to the Times:
 Yet Mr. Ackman’s staff acknowledges that this crusade is really rooted in one goal: finding a way to undermine public confidence in Herbalife so that his $1 billion bet will produce an equally enormous return. Mr. Ackman has said he will donate any profits he personally earns to charity, calling it “blood money.” The clients who invest in his hedge fund, however, would still benefit enormously.
This is too much power that Wall Street and corporations have.  It is not enough that they have power to make the rules and legislation favorable to profit from, or even to create "Get Out of Jail Free" cards to escape any consequences of breaking laws or harming society as a whole.  Now they need to be able to use the federal government to punish any opposition to their right to make profit--even to punish the opposition for their own incompetence or placing bad investment bets.  

There is so much more to this story that I have not gone through yet.  It is disgusting.

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