Hedge fund head hunt

He looks pretty healthy, actually. And he’s not complaining that Herbalife’s products harmed him or anyone else. He’s just worried about the health of his wallet — having shorted Herbalife stock by a reported $1 billion dollars just prior to orchestrating a massive PR assault on the company, alleging it operates a “sophisticated pyramid scheme.”

The timing is curious — but the motivation’s fairly obvious.

“Shorting” stock amounts to a bet that a company won’t do well, will lose money in the near future. If that happens, the person who “shorted” the stock makes money. It’s Vulture Capitalism.

Ackman specializes in shorting stock through his hedge fund, Pershing Square Capital. It is how he makes money. By picking over the carcasses of his victims. Cue Gordon Gecko.

Ackman also has very deep pockets — and very serious friends. Some of these work at the Federal Trade Commission and they launched an investigation into Herbalife’s operations at his apparent behest. So far, nothing has come of this — criminally speaking. But Herbalife has been suffering financially and in the court of public opinion as a result of the Ackman Assault.

What is the nut of the allegations?

Herbalife’s business model relies on multilevel marketing. Freelance/independent distributors sell products and earn commission on the sales. They also bring in new distributors and receive compensation for that as well.

Some succeed — they make money — others don’t.

Capitalism, you know.

Ackman describes this as a “pyramid” scheme — but he’d only be right if he were talking about something like Social Security. Herbalife actually sells products, for openers. Unlike Social Security, which simply takes money from A and then gives it to B — after taking a cut for itself, of course. That is the defining essence of a “pyramid scheme.”

And, much more important, there is no misrepresentation.

Herbalife explains to prospective distributors that they may make money — either by selling the products or by bringing in new people to sell products. Or some combination of the two. There is no guarantee made that they will make money. Let alone how much. Most salesmen work on the same basis; that is, on commission. Some entirely so. Very few people who work as independent contractors or who are self-employed are guaranteed money — including hedge fund managers.

Just the opportunity to make it.

The essence of fraud is misrepresentation — and while Ackman trills, the government hasn’t been able to produce evidence of such. Much less indictments.

Ackman banked on the value of Herbalife stock plummeting as the result of the very public statements he and his proxies made about Herbalife. When it didn’t, Ackman stood to lose millions on his “investment.”

Which, naturally, makes him upset.

But is that criminal?

Is it Herbalife’s fault?

Rather than accept he made a bad bet, Ackman is doing his best to sic the government on Herbalife — in order to make his bad bet good. Acting more like a lobbyist than a hedge fund honcho, Ackerman literally walked the halls of Congress and badgered federal prosecutors to go after the company. He hired heavyweight PR firm Global Strategies to conduct “opposition research” on Herbalife. He even wheedled Massachusetts Rep. Edward Markey to write threatening letters to Herbalife, portending FTC (and SEC) investigations.

It smacks of vendetta.

But perhaps it is Ackman — and his hedge fund — the Feds ought to be looking into. They had an obvious financial interest in ruining Herbalife — and the evidence is they took deliberate, calculated action toward that end. In journalism school, the first rule they teach is: Follow the money. And — often — you will discover a conflict of interest along the way.

Remember: None of the allegations made thus by far by Ackerman have been proved — and the government hasn’t filed any charges.

Meanwhile, the government is looking into Ackman.

While subpoenas haven’t yet been issued to him personally or Pershing Square, they have been issued to his proxies, the people who publicly attacked Herbalife on Ackman’s apparent behalf and possibly, on his nickel. That has yet to be determined — but it’s something that ought to be looked into. And if it turns out this is just a personal crusade against a legitimate company by a sour-grape hedge fund operator, well, he’ll have some s’plainin’ to do, Lucy.

The facts seem to suggest that Herbalife has a case for defamation against Ackman — who appears to have let his judgment become clouded by his greed.

Eric Peters is an automotive journalist and author. His next book, “Doomed,” will be available this winter. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.