NEW YORK (TheStreet) -- Bill Ackman said on Tuesday many nutrition club trainees weren't willing to speak out against Herbalife (HLF) because they were looking to recover thousands of dollars sunk in the company, even though they were lured into what he describes as a sophisticated pyramid scheme.

In six months, the hedge funder may find himself in a similar position, unwilling to exit his bet against Herbalife in hope of an eventual payoff.

On Tuesday, Ackman reiterated that when his hedge fund's put options in Herbalife come up against a Jan. 17, 2015 expiry, he will do what is in the best interest of the firm's limited partners, deciding to extend or close those contracts. Those puts are trading at a paper loss, especially after Herbalife shares rose over 25% in the wake of Ackman's Tuesday presentation. Still, Ackman remains one of the best-positioned people on Wall Street to make the case against Herbalife.

The hedge fund, Pershing Square, is minting money in 2014, with gains of about 25% through the first half of 2014 on a surge in the firm's two biggest positions, Allergan (AGN) and Canadian Pacific Railways (CP). Other large Pershing Square bets such as Air Products (APD), Burger King (BKW), Platform Specialty Products (PAH), Fannie Mae (FNMA) and Freddie Mac (FMCC) have also outperformed market benchmarks, pushing total assets at the firm to $14.7 billion, according to media reports.

Those gains may give Pershing flexibility to take more time on Herbalife. Were signs of progress to emerge, Pershing and Ackman could treat Herbalife-related expenses and paper losses simply as a sunk cost. Already, Pershing's investigation has cost $50 million and Ackman admitted on Tuesday that he's struggled to untangle what he believes is wrong with Herbalife.

It is unlikely any other investor on Wall Street could justify that expense to research a single trade or deal and it is also unlikely any investor fund would be allowed to stake a $1 billion short without causing its limited partners to run for the hills. But LPs in Pershing Square are well aware that they've invested in one of Wall Street's boldest and most controversial managers.

As Ackman presses Herbalife, he is simultaneously working to negotiate what may be a revolutionary deal on Wall Street in the proposed merger of Allergan and Valeant Pharmaceuticals. So much so, Ackman briefly confused Herbalife CEO Michael Johnson with Valeant CEO Michael Pearson on Tuesday. 

Ackman also wants to be a dealmaker in the possible privatization of the U.S. housing market. 

Furthermore, the hedge fund has played an activist role with Canadian Pacific and Air Products, and it has been a linchpin investor in Platform Specialty Products and Burger King, two publicly traded special-purpose acquisition corporations.  

Herbalife, seen within the context of Pershing's portfolio, may simply represent another daring bet by Ackman in the eyes of LPs, something that may be acceptable given the continued underperformance of many alternative asset classes like hedge funds.

Not all bets go as smoothly as Canadian Pacific or Air Products, Pershing LPs surely know by now.

Ackman Takes on Wall Street

Aside from Ackman's newest allegations against Herbalife, which hinge on Pershing's belief that many of Herbalife's apparent nutrition club customers are actually part of the pyramid scheme-like recruitment chain, much of the hedge funder's presentation on Tuesday was dedicated to an epic narrative against the way Wall Street operates.

By the time Ackman finished his three-hour presentation, he was near tears and had criticized the Securities and Exchange Commission, investment bank Moelis & Co., auditor PricewaterhouseCoopers, law firm Boies, Schiller, hedge fund investors such as Carl Icahn, Daniel Loeb and Robert Chapman, public relations giant Joele Frank, sell-side research analysts and even the reporting of the New York Times.

It was a performance that, depending on the ultimate fate of Herbalife, may be seen as courageous or one of the most paranoid narratives ever publicly provided by a Wall Street power player.

Ackman's sharp criticism of Ken Moelis, the founder of investment bank Moelis & Co. was the highlight.

On Tuesday, Ackman publicly confirmed that Moelis personally reached out to Pershing Square LPs on behalf of Herbalife, as the company worked to put pressure against the $1 billion short trade. Ackman said on Tuesday that Moelis' efforts could have worked, thwarting his ability to expose Herbalife's pyramid and the research he disclosed.

But Pershing Square LPs apparently stood their ground against Herbalife and Moelis. With Ackman's newest evidence, researched by former investigative reporter Christine Richard, they may continue to do so.

Meanwhile, Pershing Square will be turning over its research to the Federal Trade Commission, the SEC and others such as state attorneys general. Were they to take interest in Ackman's new findings, it could prove one of the first times a prominent Wall Streeter proved to be a whistle-blower of sorts.

Settling the Score

Ackman confirmed on Tuesday he has never publicly met with Sen. Edward J. Markey (D., Mass.) amid a campaign to garner legislative support for his Herbalife battle. He also disclosed that the California Attorney General declined to meet with Pershing Square. 

Herbalife has disclosed that the FTC and the SEC have opened inquiries into the company, and the Financial Times reported in April that the Federal Bureau of Investigations and the Department of Justice are looking into Herbalife.

Herbalife CFO John DeSimone said on Tuesday he believes the FTC and SEC reviews will clear the air for the company on Ackman's allegations. The Los Angeles-based company also pushed back against Ackman's presentation on Tuesday.

"Once again, Bill Ackman has over-promised and under-delivered on his $1 billion bet against our company," Herbalife said in a press release. The company also appeared to stand by a training program that Ackman believes has made recruiters out of Herbalife's apparent bona fide nutrition club customers.

"Club 100 was a program that contained many of the best elements of nutrition clubs, including education, mentoring and fiscal responsibility," Herbalife said.

"These elements are the cornerstone of our clubs today. Herbalife is proud of our members who use nutrition clubs as an important tool of social support to achieve good nutrition and a healthy active lifestyle," the company added.

Ultimately, regulators may now find compelling material to investigate Herbalife further. A spokesperson for the FTC declined to comment on Ackman's presentation or the agency's review of Herbalife on Tuesday.

If time and money ultimately are the undoing of most large and complex frauds, Ackman appears to have plenty of both as he fights to prove his case against Herbalife. 

-- Written by Antoine Gara in New York

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