Greenberg: Ackman and Herbalife -- The Day After

NEW YORK (TheStreet) -- Funny what a good night's sleep away from the intensity and noise of a network newsroom will do.

During Bill Ackman's presentation on Herbalife  (HLF) Tuesday, I was surrounded by people who kept coming up to me, shrugging and wondering where the beef was -- pointing to the screen hanging over the newsroom that showed a stock price that suggested he had nothing. I had headphones in my ears as I was trying to concentrate through the distractions, jumping on and off TV several times at CNBC to give a quick opinion.

As I wrote in a blog post Tuesday night, Ackman's presentation was clearly an "anticappointment."

Yet it was blockbuster or would have been considered a blockbuster if it was being presented to an investment committee at a hedge fund to support a position. And it would have been blockbuster if it was written as a 5,000 word piece in a major newspaper or online investigative site like Pro-Publica, based on the superb investigative skills of the no-razzle-dazzle Christine Richard, a former journalist who has worked at Dow Jones and Bloomberg and was contracted by Ackman to do much of the digging. (Sorry to break the news to you, but good investigative reporters often aren't good TV.)

But in this world of Wall Street, where all anybody cares about is the symbol and the next trade, Ackman made two mistakes:

1. Going on TV the day before and priming the pump for investors to expect something blockbuster, and

2. Not thinking like a TV producer -- something, as a former print newspaper guy, that still sometimes gets lost on me in the world of TV, where the mantra is "Just tell us the headline"

Instead -- silly him -- what Ackman did was lay out, step by step, in the laborious, methodical and even sometimes boring nature of an investigation, what he found. He was giving viewers in a world where attention spans are shorter than memories, too much credit for caring about the details.

And because he's short the stock, the pushback was that he can't be trusted because he's biased, which, of course, is absurd. (Everybody is biased, even longs.)

As I tweeted at one point during the presentation:

Reality: This $HLF presentation is boring, laborious. But so are investigations. Devil is in detail; Wall St wants 1 bombshell, not detail.

I was trying to make a point, lost obviously on anybody and everybody. In yet another tweet, as the stock continued to rise:

$HLF case being laid out, all Wall Street wants is the headline! Just the symbol, please!!!

And much of the presentation was spent talking about something 90% of the people trading in-and-out of Herbalife have never heard and couldn't care less about, yet is perhaps the most important part of the story: The growing significance of Herbalife's so-called nutrition clubs, which the company itself can't speak enough about.

What Ackman -- actually Richards -- pointed out was the result of visits to hundreds of clubs.

In my own investigation of Herbalife for CNBC, even after 10 months, I marveled at how complicated Herbalife was -- how little of it was intuitive to understand. After thinking I had figured it out, I would realize there was yet another layer to the onion.

When people hear "Enron," which Ackman at one point evoked, they think definitive numbers hidden off-balance sheet; they don't think about the apparent anecdotal nature of an investigation's findings, and how they're really pieces of a puzzle.

Like something on or off a balance sheet, they can't be quantified, but are the very evidenced-based pieces of an investigative puzzle. (Truth be told: Most people, even those on Wall Street, and certainly the traders who control stocks, have never done investigations. And with Herbalife, the proof isn't in the numbers because Herbalife doesn't disclose audited numbers that could, once and for all, put an end to the dispute: How much of the money distributors make comes from selling product to actual customers vs. the money they make from bonuses and the upstream flow of funds they receive from their so-called downlines? This is important because it gets to the heart of the pyramid questions: Do distributors make more money from selling or recruiting?)

Eyes glaze over when Ackman talks about how his research shows Herbalife takes advantage of poor people. Then -- boom, albeit a subtle boom -- Ackman breaks out the hidden microphone snippets that shows how they're lured in with promises of riches. In one memorable piece, Hispanic recruits were admonished that if they didn't seize the opportunity they would miss a chance to make $22,000 a month.

As this was dangled in front of them, he noted, they were encouraged to keep buying Herbalife shakes as they engaged in training programs that could last months, if not years -- until the recruits were deemed good enough to graduate.

His point was these weren't really customers. They were "phony" customers, he said; "fictitious."

His bottom line was that he believed the clubs were more about recruitment than actual sales -- a hallmark of pyramids.

Ackman went on to lay out the promotional claims of large Herbalife distributors, including one named Doran Andry, who lives in California.

During my investigation for CNBC's documentary, "Selling the American Dream," I met with Herbalife executives including CEO Michael Johnson.

After a contentious interview with Johnson at the company's Los Angeles headquarters, his PR people asked me if they could help line up any other interviews with distributors for us. During our research, we kept hitting roadblocks as we called the biggest distributors. If they didn't just hang up the phone in our ears, after we identified ourselves as being with CNBC -- or simply didn't call us back -- they would tell us they needed the company's approval to talk to us.

So the company rep asked who I wanted to talk to.

"Doran Andry," I said. His promotional videos, showing his rich lifestyle, were some of the most egregious.

"No," the rep snapped, stiffening up. There was no elaboration, and all I could think of was: Why not?

As it turns out, the company didn't give any of the big distributors -- none of whom are employees -- permission to talk to us. The reason, according to Herbalife, was that it didn't believe they were sophisticated about talking to the press.)

Herbalife's response to Ackman was not to deny what he said, but to continue its campaign of trying to discredit him. "Once again, Bill Ackman has over-promised and under-delivered on his $1 billion bet against our company." the company said. "After spending $50 million, two years and tens of thousands of man-hours, Bill Ackman further demonstrated today that the facts are on our side." (In my opinion, that's Crisis PR 101: Trying to control the message.)

Reality: When you have a day to let the Ackman presentation sink it, it was quite good; in fact, better than good -- the kind of good you expect from someone who spent $50 million to fund the digging.

In the end, as I've written, it will be up to regulators to determine whether Herbalife is a pyramid scheme -- notably, the economic analysis that will be performed by the FTC.

But the SEC is also involved, and supposedly state attorney generals. While politicians and regulators may not want to be seen helping support a hedge fund's position, especially when his findings are being presented on a silver platter, they also can't ignore it.

It's their job to deconstruct and reconstruct what he presents, much of it, by its nature. In the end, whether they shut down Herbalife and other multi-level marketers remains to be seen.

But even forced changes in marketing and other ways they do business could put a negative dent in the underlying business model, and therefore future growth.

Investors, however, can't look beyond the headline or what they believe they're being told by a stock, which in this case I believe is clueless. It reacted Tuesday to emotion, not facts.

The big blockbuster will be the day regulators or the company itself say it's time to care, one way or the other. Between here and there traders, both ways, will continue to have a field day.

If that news is not what stock said Tuesday, investors will not be able to say Ackman, at least, and a few others, did not warn them.

Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security. He can be reached at herbonthestreet@thestreet.com.

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