Ackman's latest attack on Herbalife backfires, and accusations fly

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After promising to deliver a coup de gras to his nemesis, Herbalife ( HLF ), billionaire hedge fund manager Bill Ackman  gave a presentation on Tuesday that so thoroughly failed to impress Wall Street that stock in Herbalife actually rose an astonishing 25% over the course of the day, even seeming to rise visibly with every word that fell from Ackman's mouth. The episode can only be described as an embarrassing repudiation of Ackman's accusations. CNBC is reporting that the bungled assault may have added more than $70 million of unrealized losses to Ackman's short stock & long put-options position.

Ackman's one-man crusade against Herbalife has been one of the strangest and most widely followed stories on Wall Street over the past year. While once billed as a showdown between rival hedge fund managers (Ackman and Carl Icahn ), Icahn has essentially bowed out of the competition, leaving Ackman to struggle against the company and its officers directly. Ackman has had some choice words for Herbalife's CEO Michael Johnson, saying: "Michael Johnson is a predator. This is a criminal enterprise. I hope you're listening, Michael. It's time to shut this company down."

Johnson, perhaps emboldened by Ackman's near meltdown on Tuesday, has begun to counter-punch more aggressively, accusing Ackman of manipulative timing: "Mr. Ackman suddenly announces he will make a presentation on Herbalife on Thursday- the day before puts expire ." Herbalife's CFO John Desimone is now in arms as well, even saying that Herbalife would consider suing Ackman.


But has Ackman done anything illegal? Isn't the man entitled to his opinion? That's a much trickier question than it sounds. The market's prime directive is that anything -whether predefined or not-that constitutes an attempt to manipulate the markets is a crime, and an increasing number of voices-not merely those within Herbalife-are now saying that Ackman has gone too far, that his attacks on Herbalife now look more like manipulation than mere prediction. The New York Times reported in March on Ackman's efforts to lobby politicians to act against Herbalife.

Ackman's arguments against Herbalife often suggest that the company's business practices don't pass the smell test. Right or wrong, he best learn to point that nose at himself. He has begun to look less like a crusader for justice than a hyper-privileged insider who thinks he has the right to make money any way he wants, even if that way would be illegal for anyone else.

Contemporary activist investors have been exploiting the gray areas in market rules for years, but the more Ackman strays into the darker shades of gray, the more likely it is that he will trigger a backlash that will close the candy store for himself and all the others of his ilk. Who wants to bet on whether his friendship with Icahn is strong enough to survive should that happen?

Julian Close has been a business writer since the first day of the twenty-first century, having written for PRA International and the United Nations Department of Peacekeeping. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. He became a stockbroker in 1993, but now works for Fresh Brewed Media and uses his powers only for good. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC .


This article was originally published on MarketIntelligeneCenter.com



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Stocks

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