This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Herbalife Tumbles as FTC Opens Investigation

Stocks in this article: HLF

While the Herbalife hedge fund battle has cooled in recent months, the battle between the company and Ackman has moved to Washington and a high stakes lobbying war.

Ackman, in a Tuesday presentation, also pressed a case that Herbalife's practices in China were fraudulent, an accusation the company quickly denied.

Ackman Goes to Washington

Ackman and Herbalife both upped their lobbying efforts in 2013, as each party sought to make their respective arguments in Washington.

That comes as Ackman's losses forced the hedge funder to amend his short trade. He also conceded that succeeding or failing on his Herbalife short would ultimately come down to regulators in Washington. Ackman has lobbied hard to have both the FTC and the Securities and Exchange Commission investigate Herbalife.

Whether the FTC's review has been in the works for months, or was the result of Ackman's lobbying efforts is to be seen. A review of publicly disclosed political campaign donations indicates that Herbalife spent about 10 times the amount that Pershing Square did in Washington in 2013.

In January, Sen. Edward J. Markey (D., Mass.) asked that the SEC and FTC to seek more information into Herbalife's business practices. A day later, the League of United Latin American Citizens applauded Markey's probe.

In 2013, Pershing Square began lobbying in Washington, spending $90,000 with the Wexler & Walker Public Policy Association and $48,000 with the Moffett Group, a lobbyist that Politico reported worked to gain signatures on a letter Rep. Linda Sanchez (D-Calif.) sent to the FTC to investigate Herbalife's business practices. Pershing's lobbyists targeted signatures from the Congressional Hispanic Caucus (CHC), according to Politico's reporting. Prior to 2013, Pershing Square hadn't conducted lobbying in Washington.

Herbalife meanwhile spent $1.34 million on lobbying in 2013, according to OpenSecrets, including $950,000 from the company's lobbying group Herbalife International of America. The company also has spent lobbying money with Downey McGrath Group, Ogilvy Government Relations, the Podesta Group, Glover Park Group and International Business-Government Counsellors.

In addition to lobbying money, Herbalife's political action committee has generally increased its spending on elected officials. The PAC donated $61,478 to elected officials in 2011, $51,993 in 2012 and $106,600 in 2013.

Amended Trade

After suffering large losses, Ackman amended his Herbalife trade so as to have synthetic short exposure to the company instead of a direct short. At an investor conference earlier in 2014, Ackman said his potential profit from the Herbalife short, however, has grown. Around that time, Herbalife entered to a share repurchase agreement through a convertible note offering that Ackman said indicated the company might be struggling to obtain bank financing.

He also vowed to continue his fight against the company no matter the near-term performance and compared his trade to a short position in bond insurer MBIA (MBI) that eventually paid off.

-- Written by Antoine Gara

2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs