Here's a growing business model in the financial world: bet that a company’s stock will crash, then sic the federal government on the company.

Politically connected hedge-funder Bill Ackman has been open about this. He shorted the nutritional supplement company Herbalife in late 2012, blasting it publicly as a “pyramid scheme.” Now, after months of lobbying Congress and the executive branch, he's succeeding in sending the Federal Trade Commission after Herbalife.

Expect more of this lobbying-assisted investing as hedge funds and private equity firms lose their aversion to politics and dive more deeply into Washington.

Ackman announced in December 2012 that he was taking a $1 billion short position on Herbalife. To simplify: He borrowed a billion dollars worth of Herbalife stock and sold it. If the price falls before the term of the loan, he buys back the shares at a lower price, returns the stock to pay off the loan, and pockets the difference. In other words, if the value of the stock falls to $500,000, he could make $500,000, minus interest, transaction fees and, in this case, lobbying costs.

Ackman explained his bet by arguing that Herbalife was a pyramid scheme. Like Mary Kay, Herbalife is a “multilevel marketing company,” which means that it profits not only from selling its nutritional powders to consumers, but from selling them to representatives who try to sell them to friends and neighbors. Ackman argued that, like a pyramid scheme, this business would eventually implode.

After Ackman’s announcement, Herbalife shares fell from $46 to $27. Ackman kept hammering away, taking his compelling slide show on the road to convince the investing public that Herbalife was a house of cards.

But after the initial drop, Herbalife stock rebounded to $43.50 on January 18, 2013 -- the same time another activist investor, Carl Icahn, jumped in on the opposite side of the bet, becoming Herbalife’s biggest single investor. In the summer, things got scary for Ackman, as prices rose to $65 a share. That’s when George Soros bought in, siding with Icahn against Ackman. By the end of 2013, prices hit $80 a share, leaving Ackman hundreds of millions of dollars in the red.

But Ackman had another weapon in his arsenal. Namely: Big Government.

Ackman lobbied congresswoman Linda Sánchez, D-Calif., to sic the Federal Trade Commission on Herbalife. Sanchez complied.

Ackman also “helped organize protests, news conferences and letter-writing campaigns,” in the words of the New York Times, and “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…”

Ackman's firm, Pershing Square Capital Management, hired an army of K Street lobbyists — paying a combined $14,000 a month to three firms that disclose lobbying for him — to turn the government against Herbalife. For instance, one firm reported to the Senate that it represents Pershing Square on “issues relating to enforcement of consumer protection laws and securities regulations relating to pyramid schemes." Ackman’s registered lobbyists include ex-congressmen and former federal officials.

Here are the two scary things about Ackman’s fight:

First, it might work. The FTC on Wednesday announced a civil probe into Herbalife's business practices, pulling the stock down more than 15 percent in a day. Just that announcement made Ackman some money (or at least mitigated his losses).

Second, you can expect a lot more of this sort of thing in the future: a billionaire investor with political connections making a big bet on public policy, then lobbying hard to bring about that policy. This is different from ordinary lobbying. Typically, companies lobby to protect or subsidize their business. When hedge funds play Ackman’s game, helping or hurting some other company is the entirety of that business — and so lobbying can become the core of their business plan.

We've seen it before. Investor Steve Eisman took a short position on for-profit colleges and lobbied Congress and the Department of Education to crack down on them. The Obama administration this month announced new proposed regulations on these colleges.

Before 2006, hedge funds were notorious for avoiding politics. But lawmakers like Sen. Chuck Schumer, D-N.Y., have aggressively courted the hedge fund industry, asking them to be more active in politics.

Congress is now getting the attention it sought from hedge funds. K Street might never be the same.

Timothy P. Carney, The Washington Examiner's senior political columnist, can be contacted at His column appears Sunday and Wednesday on