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.
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.
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.
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