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Guy Who’s Short Herbalife Says Guy Who’s Long Herbalife Saying Guy Who’s Short Herbalife Saying Herbalife Is A Fraud Is A Fraud Is A FraudBy Matt Levine
One day Herbalife will either be put out of business by consumer-protection regulators or it won’t. If it is then Bill Ackman will make a lot of money and Carl Icahn will lose a lot of money, and if it isn’t Ackman will lose a lot of money and Icahn will make a lot of money, and in the meantime everyone will shout that everybody else should be investigated.
That’s proceeding apace. Ackman yesterday:
In a statement late Tuesday, Pershing Square Capital Management’s Ackman said that he was pleased that the NCL was requesting an FTC investigation and believes it will show that the company is a pyramid scheme.
We regret that the National Consumers League has permitted itself to be the mechanism by which Pershing Square continues its attack on Herbalife. If anything, it is Pershing Square that should be investigated by appropriate authorities. Its actions are motivated by a reckless $1 billion bet against the company based on knowingly false statements about Herbalife.
Now Herbalife may or may not be a pyramid scheme but I’ve always thought that demands to investigate short sellers are unfair and one-sided. People who say mean things about stocks they’re short are always accused of manipulation. People who say nice things about stocks they’re long – which happens all the time – are rarely accused of market manipulation.1
But not never! I assume Daniel Ravicher is a little nuts but still, I like his style:
Plaintiff Daniel Ravicher alleges … against Defendant Carl C. Icahn as follows:
Defendant is aiding and abetting one of the largest frauds in history by publicly promoting and propping up the share price of Herbalife Ltd. (“HLF”) after knowing that HLF is an illegal pyramid scheme. Defendant’s conduct is motivated solely by a desire to exact revenge on a former business partner that successfully sued Defendant for breaching an agreement between them many years ago and that is now publicly known to have a substantial investment in a short position in HLF. Defendant’s conduct is illegal and causing injury to Plaintiff who also has a substantial investment in a short position in HLF. …
Defendant is guilty of aiding and abetting the HLF fraud because (1) HLF is a fraud, (2) Defendant has publicly conceded that he has actual knowledge of HLF’s fraudulent activities, and (3) Defendant continues to provide “substantial assistance” to the HLF fraud through publicly promoting and propping up the share price of HLF.
The complaint, which Ravicher filed today in a Manhattan federal court, is worth reading mostly for its jujitsu with the standard short-sellers-manipulate-the-market claims,2 as well as its armchair psychologizing about Icahn (“Defendant has remained angry and bitter at Mr. Ackman to this day and has waited for an opportunity to vindictively punish Mr. Ackman.”). It is not … it is not going to win.3 Battles between long and short investors in a stock tend to involve a lot of posturing about who’s manipulating what, but they tend not to be resolved on that basis. The stock is good or it’s not. You can’t sue it into being good, or not good, as the case may be.
But you can get whatever enjoyment people get out of suing each other. And I can get whatever entertainment I get – and it’s plenty! – out of the infinite regress of these claims. Ravicher’s complaint contains repeated assertions that Herbalife is a fraudulent pyramid scheme. Herbalife, and its shareholders, like Icahn, presumably disagree. They might even go so far as to say that Ravicher’s complaint amounts to libel. Market manipulation even. I HOPE THEY SUE.
Ravicher v. Icahn [SDNY]
1. Outside of obvious pump-and-dump schemes.
Defendant is a very wealthy man who believes he is above the law. He believes he is better than everyone else because he is a multi-billionaire who can hire minions of staff and attorneys to do his bidding. In this case, he seeks to settle a score with Mr. Ackman and he is wiling to do any and everything to accomplish that goal, including violating the law by aiding and abetting a fraud.
Incidentally Ravicher has no “minions of attorneys to do his bidding”; he’s his own lawyer.
3. I mean, what do I know, but: it’s not going to win. One way to tell is: if suing Icahn on behalf of short sellers was a good idea, wouldn’t Ackman have done it? Lawsuit EMH baby.