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Big League Economics

Van Voorhis: Swampy Ackman defies FTC in $1 billion war on Herbalife

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Billionaire hedge fund owner William A. Ackman, the founder and CEO of Pershing Square Capital Management, prides himself on being a driven activist investor, who uses his massive influence to turn around companies and benefit not just his investors, but society-at-large.

The New York Post reported Oct. 7  Ackman took a beating his public short on the company Herbalife’s stock, as the company’s value has soared.

The Post reported that Ackman is hurting because of an 11 percent jump in the stock after a recent offer to repurchase $600 million of outstanding shares was leaked.

The rise in the value of stock hurts Ackman because he is banking on Herbalife’s stock price crashing and burning. This creature of Wall Street tried to use the power of the Washington swamp to kill a viable and healthy company – and it did not work.

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After his very public five-year war on Herbalife ended in a settlement with the Federal Trade Commission, and full compliance by the company, Ackman keeps working to destroy them by any means necessary.

Most people would wonder why a self-described moral do-gooder like Ackman would keep fighting for the implosion of a company which not only employs thousands of everyday Americans, but also has met and exceeded the compliance standards set by the FTC.

It’s because he has more than just $1 billion on the line.

It’s his reputation that is on the line.

According to Fortune, “at about 2 p.m. on Wednesday, Dec. 19, 2012, CNBC’s Kate Kelly broke the news that billionaire Bill Ackman’s hedge fund had taken a massive short position—about $1 billion worth, we know now—in the stock of a nutrition company called Herbalife. Herbalife stock then fell 10 percent in six seconds, triggering circuit breakers and a temporary trading halt.”

After labeling the company as a “pyramid scheme,” Ackman has spent millions of dollars of his investors’ money hiring top-tier lobbying and public relations firms to get the federal government on his side – and beat the company into bankruptcy.

The New York Times reported in 2015 that his war against Herbalife “is a wager that Mr. Ackman has pledged to ‘take to the end of the earth’ and one that will ultimately depend on whether the government punishes Herbalife.”

To draw the government’s attention, Mr. Ackman has employed a handful of law firms and the Global Strategy Group, a public affairs firm that organized rallies and conducted opposition research on Herbalife. He also hired lobbyists to attract the attention of lawmakers, including Senator Edward J. Markey, Democrat of Massachusetts, when Mr. Markey was a member of the House. In January 2014, months after his staff had met with Mr. Ackman, Mr. Markey wrote letters to the F.T.C., the S.E.C. and Herbalife.

That wasn’t the end of Ackman’s conniving efforts to discredit the company, however. ABC News reported that Ackman even offered to pay a ‘whistleblower’ as much as $3,600,000 if he could provide the government with damaging information about the company.

Ackman also appeared in a documentary about his struggle, titled “Betting on Zero,” where he made the extraordinary claim that he expected Herbalife shares to go to $0. The motive here was clear – to cause a government investigation that would result in the death of Herbalife – and a massive profit that he could line his pockets with.

After four years of crusading to get the government on his side, the FTC concluded their investigation by handing Herbalife a $200,000,000 jjudgment and demanding that they reform their business practices. To Ackman’s dismay, the agency disagreed with his label that Herbalife was a pyramid scheme, and the stock jumped over 10% on news of the settlement.

According to The New York Times the agreement with the F.T.C. will require Herbalife to overhaul its system for compensating its customers and recording sales of its supplement drinks and other food products.

After overhauling their compensation system, Herbalife announced earlier this summer that they had successfully documented over 90 percent of their purchases, which greatly exceeded the 80 percent threshold set by the FTC less than a year ago. The stock is currently within arm’s length of its all-time high, and is significantly higher now than when Ackman shorted it almost five years ago.

As an owner of one of the country’s largest hedge funds, it’s well within Ackman’s rights, however objectionable those rights may seem, to try to discredit and deface a company for his own profiteering motives. What’s not okay is that to achieve this aim, he did everything in his power to weaponize the federal government, and use your and my tax dollars for his private greed.

For sake of argument, let’s forget for a moment what Ackman has done in years past. One could make the claim that Ackman was simply trying to hold the company accountable, and wanted the FTC to investigate what he felt were unfair consumer practices. That would certainly fit within the framework of Ackman’s moral investor mantra.

If that claim is true, then the FTC laying down a $200 million judgment, and forcing Herbalife to revise all of its business practices under the scrutiny of the full force of the federal government should be punishment enough. Meeting those deadlines earlier than necessary certainly proves that management has taken the problem seriously and is committed to ethical business practices going forward.

What is critically important here is that despite Herbalife being in full compliance with all government edicts, Ackman continues to wage war on a company operating well within the law and providing solid stock returns to its investors.

When Ackman pledged to take the Herbalife fight to the end of the earth, he wasn’t doing it for any moral reasons. If he really believed in simple moral rectification of companies, he would logically be more than happy to give up this fight.

But it is not about righting the wrong of companies for him. It’s all about winning a war at any cost, even if that means stopping at nothing to destroy a profitable, well-run company that has proven it has righted its wrongs.

In an article Ackman wrote in his student newspaper at Harvard, he told his audience: “Let’s face up to what HBS (Harvard Business School) represents. We spend 90 percent of our studies at HBS pursuing the maximization of the dollar.”

The same man who competed on his school’s rowing team with dollar signs affixed to his oars is continuing to use his crony capitalist friends in government to sink Herbalife’s ship. Perhaps it’s time that Ackman faces up to the reality that his battle is unwinnable, and the only person who is going to keep losing is him.

Peter Van Voorhis is a conservative activist, commentator, and journalist who focuses on political issues affecting millennials. Find him on Twitter @RepublicanPeter.

 

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Big League Economics

Derrick Wilburn Explains Why Democrats Are So OLD

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Derrick Wilburn of Rocky Mountain Black Conservatives (RMBC) explains in a stirring new piece shared on Facebook why the Democratic Party leaders are so old, while the Republican Party — adherent to its own term-limit laws — provides fresh faces in committee leadership.

Wilburn writes:

Quick, name a nationally-prominent Republican who’s under 60 years of age. Those who pay even the least bit of attention to the political game can likely name Tim Scott (52), Marco Rubio (46), Mia Love, (48), Ted Cruz (46), Rand Paul (54), Trey Gowdy (51), Nikki Haley (46) among others.

In recent weeks as many as 7 Republicans who are current committee chairmen have announced their intentions to retire from Congress. Why? Many in the media are attempting to sell the narrative that its because they sense impending doom. Not true. Its’ because the Republican caucus term limits its chairmanships and these have reached the end of their terms.

A recent piece in TheHill.com spotlights a key difference between the way the Republican caucus & Democrat caucus in Washington D.C. operate, but a difference few in the USA are aware of: “The term-limit policy, put in place by former Speaker Newt Gingrich (R-Ga.) in 1994, was designed to keep the party from growing stale by regularly injecting new blood and fresh ideas into the mix.”

The GOP’s self-imposed rule is that legislators can not serve more than six years as the party’s top lawmaker on a committee. So once you’ve chaired a committee for six, you’re out and it someone else’s turn. And there’s no back-dooring it. Once you’re done, you’re done. You can’t return to committee member status for a year or two then run for Chair again. They can chair another committee, but not the same one again.

Democrats have no such rules and its at least a part of the reason there’s such a lack of youth in the Dem caucus leadership.

Apply the same question which opened this newsletter to today’s Democrat party leadership — *quick*, name a prominent Democrat, someone with presence on a national level — who’s under 60 years of age. Nancy Pelosi (78), Harry Reid (tho now retired most can name him, 80), Diane Feinstein (84), Chuck Schumer (68), Maxine Waters (80), Elizabeth Warren (70), Bernie Sanders (76 – tho technically an Independent not a Democrat) & the list goes on. All nationally prominent, all 70, 75, 80+ years of age.

Where’s the youth? Blame, at least in part, a lack of (self-imposed) term limits.

Democrats pay their dues early in their careers by carrying the water (i.e. providing necessary votes) and one day ascend to the desired position of Committee Chair, then stay there, …forever.

So what happens often times is younger Democrats win local elections, get to D.C., look up and realize that these old farts aren’t going anyplace! The old guard is from districts in which they can’t be un-elected; they’ve been their for 25 years; been chair for 14; are currently 72 years old meaning they’ll be Committee Chair for at least another 10 or 15 until they retire (if they ever do.) So the young bucks realize, “I’m frozen out.”

For example: Rep. John Conyers, who was forced to (finally) resign in December amid the #MeToo scandal, was born in 1929. Conyers helped draft the presidential articles of impeachment — against Richard Nixon! Conyers first won a seat on the Judiciary Committee in 1965. He first became Chair of the House Oversight Committee in 1989.

Imagine you’re a young lawyer, say 46 years old, a Democrat who just won an election and your dream has been to get to D.C. one day and chair a committee that’s chaired (when Dems are in power) by 70 y/o Elizabeth Warren. You know good & darn well that you’ve no hope of that chairmanship for another 10 or 15 years! What’s that do for your hopes for your future?

You’ve heard of, seen and know Trey Gowdy, Ted Cruz, Marco Rubio, Rand Paul, Tim Scott, and they’re nationally prominent because they get a shot at the top much earlier in their careers and that, at least in part, summarizes why pretty much the only Democrats you see on the nightly news speaking from a podium into a microphone at press conferences are old farts. Nancy Pelosi, Chuch Schumer. That’s just about it.

The situation caused the National Review to write a major piece which it titled “Old-Guard Democrats Refuse to Leave the Stage” sub-title “They’re keeping new leaders from emerging.”

Are term limits a good thing? That debate rages on. But the Capital Hill Republican party took the step of self-imposing them 25 years ago and it cannot be argued that the step has not created some very noticeable separation and differences between the parties.

-A Derrick Wilburn original

 

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