Explaining Southern California's economy

Is the federal government investigating Herbalife?


A worker cleans the logo on the Herbalife sign as finishing touches are put on the company's building in Torrance, Calif. A report from the New York Post about an FTC investigation of the company is being questioned.

It initially looked as if the New York Post had broken a story this morning about the Federal Trade Commission (FTC) investigating L.A-headquartered Herbalife for possibly breaking some laws.

The basis of the NYPost story was a Freedom of Information Act (FOIA) request the paper submitted last year, after hedge fund manager Bill Ackman made a massive presentation accusing Herbalife of running a pyramid and announcing a $1 billion-plus bet against the company's stock. 

The NYPost was attempting to determine how many complaints had been submitted to the government involving so-called "multi-level marketing" companies, of which Herbalife is one. Something interesting happened when the request came back:

The FTC redacted some sections, saying it didn’t have to divulge “information obtained by the commission in a law enforcement investigation, whether through compulsory process, or voluntarily ...”

Other complaints contained a note referring to a “pending law enforcement action.” The FTC did not say whether the action was civil or criminal.


Herbalife battle: It's nuclear war between Bill Ackman and Carl Icahn


A worker cleans the logo on the Herbalife sign. The battle of words between investors with stakes in the company has heated up.

This video I've embedded below is worth watching to get an idea of the kind of men who are  fighting a very public battle over the L.A.-headquartered weight-loss products and supplements maker Herbalife. Hedge fund manager Bill Ackman and legendary investor Carl Icahn do not like each other one little bit — and the acrimony goes way back, to 2003 when the two tangled over a deal with a real estate company that went so bad that they had to settle the particulars in court (Ackman won). 

Ackman contends that Herbalife is a pyramid scheme. He's bet more than $1 billion that the company's stock isn't just going to decline, but go to zero. Zero! Another hedge fund guy, Dan Loeb, has taken the other side of that bet, buying up several hundred million bucks worth of Herbalife stock, on the assumption that the price will rise.


In Herbalife battle, Carl Icahn basically hates Bill Ackman's guts

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Billionaire investor Carl Icahn has something up his sleeve when it comes to Herbalife. And he really doesn't like Bill Ackman.

The most recent combatant to enter the fray in the battle over L.A.-headquartered diet and supplements maker Herbalife is billionaire investor Carl Icahn. He is apparently opposing hedge fund manager Bill Ackman, who — claiming that Herbalife is a pyramid scheme — has amassed a $1 billion-plus bet against the company's stock. Icahn might be allied with Dan Loeb, another hedge funder who has taken the other side of Ackman's bet, to the tune of hundreds of millions.

Icahn called Bloomberg TV Thursday and in no uncertain terms made it clear that he basically hates Bill Ackman's guts (the two have locked horns in the past), but he refused to confirm that he's joined Loeb in going long on Herbalife. Although you can read between the lines:

[I]t's no secret I don't like Ackman. I have no respect for him and I don't like him and that's not a secret. But that doesn’t mean that I'm going to go in and buy stock in a company necessarily just to get him. Frankly, I don't like the way he did this anyway. If you're short, you go short and hey, if it goes down, you make money. You don't go out and get a roomful of people to badmouth the company. If you want to be in that business, why don't you go out and join the SEC.


And then there were three: Carl Icahn joins Ackman, Loeb in Herbalife battle

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What's he thinking? Billionaire investor Carl Icahn has reportedly bought a stake in Herbalife.

Hedge fund manager Bill Ackman has made a very big, $1 billion bet against Herbalife, arguing that the nutritional supplements company, headquartered in L.A., is a pyramid scheme. His stated goal: drive Herbalife out of business.

Fellow hedge funder Dan Loeb has countered Ackman's "big short" with a long position, betting that Herbalife will survive.

Now another heavyweight investor has joined the fray: Carl Icahn. While Icahn has reportedly told other investors that he has bought a stake in Herbalife, we don't yet know how he's placing his bets. But I wouldn't bet against the idea that he's joining Loeb in taking a long position. Icahn and Ackman are not exactly good buddies.  This is from the Wall Street Journal:

There is no love lost between...Ackman and Icahn. The two billionaire hedge-fund managers spent years tangling in court over a sum of $4.5 million. The dispute centered on profits Mr. Icahn made in the sale of shares of Hallwood Realty Mr. Ackman had sold him in 2003, according to a 2011 article in the New York Times on the feud, with the two agreeing they would split profits above 10% if Mr. Icahn sold his shares within three years.

In 2004, Hallwood merged with another company, sending share prices up. Mr. Ackman thought he was due a cut of Mr. Icahn's profit; Mr. Icahn said a merger didn't equal a sale of shares. Mr. Ackman ultimately won the legal dispute, walking away with nearly $9 million, including accrued interest.


Will Bill Ackman face a 'short squeeze' on his Herbalife bet?


A worker cleans the logo on the Herbalife sign as finishing touches are put on the company's building in Torrance, Calif. The company has defended itself against charges that it's a pyramid scheme.

Hedge fund manager Bill Ackman, who runs Pershing Square Capital Management, has taken a $1-billion-plus short position against L.A.-headquartered Herbalife, the diet and nutritional supplements company.

Ackman says Herbalife is operating a pyramid scheme: its business depends on signing up new suckers, not on actually selling products. He's pledged to drive the company, in the language of finance, "to zero."

Ackman's fellow hedge fund manager Dan Loeb is taking the other side of that bet. He's buying up Herbalife shares, whose value was depressed last year following a three-hour presentation (complete with 343 PowerPoint slides) by Ackman. 

Ackman is short. Loeb is long. And Herbalife is stuck in the middle.

But the situation is improving for the company. Last week it made its case, which included the fact that Herbalife has nearly $1 billion in cash on hand to execute buybacks of its shares.