The NY Times knows that hedge funds are bad and their top dogs are worse, so they have no trouble drawing the battle lines in their front page story on hedge fund hero Bill Ackman versus Herbalife. However, I am utterly mystified as to how they sorted out good and evil. Their gist, as best I can determine:
After Big Bet, Hedge Fund Pulls the Levers of Power
Staking $1 Billion That Herbalife Will Fail, Then Lobbying to Bring It Down
Putting their money where their mouth is - sounds ominous!
The letter [from Congresswoman Sanchez to the FTC] was a small hint of Mr. Ackman’s extraordinary attempt to leverage the corridors of power — in Washington, state capitols and city halls — for his hedge fund’s profit after taking a $1 billion financial position called a short, a bet that will pay off only if Herbalife’s stock drops.
Corporate money is forever finding new ways to influence government. But Mr. Ackman’s campaign to take this fight “to the end of the earth,” using every weapon in the arsenal that Washington offers in an attempt to bring ruin to one company, is a novel one, fusing the financial markets with the political system.
Others have criticized the business practices of Herbalife, a company that sells vitamins and other health supplements through independent distributors, many of whom are lower-income Latinos or African-Americans. But Mr. Ackman’s attack is unprecedented in its scale, and Herbalife officials strongly deny his accusations that the company is a pyramid scheme that stays afloat by constantly recruiting new distributors.
Novel! Extraordinary! Unprecedented! So Mr. Ackman's behavior is nothing at all like, for example, the millions spent invested by multiple law firms rounding up plaintiffs and lobbyists for their incredibly lucrative war against Big Tobacco. Ahh, well, that was different, because tobacco is bad. But if Mr. Ackman's allegations are correct - IF they are correct - then Herbalife is also bad and shutting them down would also be in the public interest. Does the Times even examine that possibility? Not in this story.
And why are Team Herbalife cast as hapless victims of a Wall Street billionaire? BusinessWeek looked at Herbalife a year ago and noted this about CEO Michael Johnson:
His total compensation in 2012 was valued at about $10.3 million. In 2011 he exercised a batch of stock options and earned almost $25 million.
He took home another $44 million in 2013, so that adds up to a mere $79 million in the last three years. He presumably owed some taxes, so this hardly makes him a billionaire. But he is surely an Evil One Percenter who may or may not be making his fortune by exploiting blacks and Hispanics. Why the Times leaves this unexplored is a mystery.
Also a mystery - a dueling news service, Reuters, ran this just yesterday:
Ackman outspent by Herbalife in lobbying battle
By Svea Herbst-Bayliss BOSTON Sun Mar 9, 2014
(Reuters) - Hedge fund manager William Ackman, who is betting $1.16 billion that Herbalife is a fraud, spent $264,000 last year on lobbyists to press his case against the company, according to government documents filed in recent weeks.
That amount is dwarfed by the nearly $2 million Herbalife spent in 2013 on federal lobbying as the nutrition and weight loss company fought the billionaire investor's claims it runs a pyramid scheme. In an illegal pyramid scheme members earn more for recruiting new members into the scheme than for selling the products outside the network.
To recap, a possibly evil company run by a rich guy spends million on lobbyists defending itself from a crusader in the public interest who just happens to be a billionaire hoping to make hundreds of millions for his investors if his crusade pans out. (Ackman has announced that he will donate his personal profits on this to charity, but of course a buttressed reputation and happy investors won't be priced in to that contribution).
So how does one pick a side? And how does one keep a straight face while pretending that running to Washington for help in a business scuffle is novel?
To their credit, the Times does not hide that most of the lobbyists hired by Ackman fall on the Democratic side of the aisle, since that is where the administrative power currently lies.
LET'S NOTE: The Times was not providing for comments on this story (but now they are). However, their Deal Book flags the story and the first reader comment is so Pavlovian I almost wonder if it is authentic (No, I don't):
It's one thing to defend a vulnerable social group from exploitation, but using that vulnerability as a pretext to exploit the same group for one's gain is unconscionable. William Ackman is a sleazy operator, able to pull strings because he has the financial resources to do what an average citizen couldn't. I would call for an investigation into his questionable relationship with Representative Sanchez and others who did Ackman's bidding. If he was throwing money around to influence his agenda, some of it may have wound up in an elected official's hands. I hope that Herbalife's stock soars through the roof.
Yay, millionaires! Boo, billionaires.
FULL DISCLOSURE: Some hedge fund billionaires are backing Ackman and some are investing in Herbalife; I am neither a long, a short, nor a billionaire.