HATING HERBALIFE: Billionaire hedge fund manager Bill Ackman approached Democrats on Capitol Hill to pursue a federal investigation into the nutrition and marketing company, Herbalife.
By Rob Nikolewski │ New Mexico Watchdog
Critics of billionaire Bill Ackman accuse the financier of using congressional Democrats to go after Herbalife, the gigantic nutrition and multi-level marketing company that Ackman’s hedge fund stands to make millions from – should its stock tumble.
But the spokesman for a New Mexico congresswoman who co-signed a letter last year urging the Federal Trade Commission to investigate Herbalife says Rep. Michelle Lujan Grisham simply wanted the FTC to look into charges the company hurts minorities — Latinos in particular.
“The congresswoman, who has a long record of protecting consumers, agreed to sign the letter to the FTC because of legitimate concerns that have been publicly raised regarding this company and allegations of targeting Hispanics,” Lujan Grisham spokesman Gilbert Gallegos said in an email to New Mexico Watchdog.
On Tuesday, a story on Watchdog.org reported that Ackman, who has accused Herbalife of operating “the best-managed pyramid scheme in the history of the world,” has enlisted several K Street lobbying groups in Washington D.C. to get Democrats, including the Congressional Hispanic Caucus, to pressure an FTC investigation to look into the company.
That has raised concerns that Ackman and his Pershing Square Capital Management hedge fund are using Capitol Hill to drive Herbalife into the ground. Ackman and Pershing Square have placed a $1 billion “short” bet that stock in the Los Angeles-based company will crater.
Ackman last year said he would go “to the end of the earth” to see Herbalife fail.
Veronique de Rugy, a senior research fellow at the free-market Mercatus Center at George Mason University, calls the move “a kind of crony capitalism” in which wealthy investors try to get help from Washington to achieve what they haven’t been able to achieve on Wall Street.
“It’s terrifying,” de Rugy said in the Watchgdog.org story, adding, “This is the danger of a government that is almost limitless in its power and reach. It gives private actors the incentive to use government influence to manipulate the marketplace.”
Ackman says he won’t take any money should the Herbalife “short” pay off. But his critics say his promise extends only to his own income after expenses and does not include other investors in his hedge fund.
In March, an Herbalife spokesman called Ackman’s efforts “a cynical, self-serving attempt to manipulate the market by buying his way into an investigation to cover his own reckless $1 billion dollar bet.”
“LEGITIMATE CONCERNS”: A spokesman for Rep. Michelle Lujan Grisham, D-N.M., says she called for an investigation into Herbalife because of allegations the company targets Hispanics.
Latinos reportedly comprise 60 percent of Herbalife’s distributors and Ackman has accused the company of a establishing a corporate structure in which the majority of distributors make little or no money while a handful of executives make big commissions.
According to the New York Times, Ackman personally lobbied Rep. Linda Sanchez, D-Calif., and the Boston Globe reported Ackman lobbied the office of Sen. Edward Markey, D-Massachusetts, to urge federal regulators to open a fraud investigation into Herbalife.
Markey later said he did not know that Ackman could potentially profit from the deal.
In July 2013, a senior aide to Linda Sanchez’s sister, Rep. Loretta Sanchez, D-Calif., emailed staff associated with members of the Congressional Hispanic Caucus to convene a conference call to discuss an FTC fraud investigation into Herbalife.
In addition, the Watchdog.org story reported that the chief legal officer for Pershing Square was made available to caucus members “to offer further background on the issue.”
Later that month, Lorreta Sanchez and fellow caucus member Lujan Grisham signed a letter to the head of the FTC calling on the agency to “look into Herbalife’s business practices.”
By March of this year, the FTC announced an investigation, which is still ongoing.
Through her spokesman, Lujan Grisham denied any undue influence prompted her to sign the letter.
“Our office has listened to all sides of the issue, including a visit to Herbalife’s operations in Albuquerque,” Lujan Grisham’s public information officer Gallegos said in an email. “The FTC should be allowed to complete its investigation.”
A look at Lujan Grisham campaign contributions by New Mexico Watchdog did not show any contributions from Ackman or anyone associated with Pershing Square hedge fund.
However, Lujan Grisham did receive $1,500 in 2013 from one of the D.C. lobbying outfits that Ackman hired: Ibarra Stategy Group. Of that, a $500 contribution came from former Albuquerque Mayor Marty Chavez, now a consultant at Ibarra.
“Campaign contributions do not play any role in the congresswoman’s actions on behalf of constituents,” Gallegos said.
While Ackman, who calls himself an activist investor, continues to lambaste Herbalife, another billionaire, Carl Icahn, who holds more than a 17 percent stake in the company, defends Herbalife.
Last year, the two corporate raiders attacked each other in an epic mudslinging battle on CNBC that lasted nearly a half-hour. Icahn called Ackman “a crybaby” and “a liar” while Ackman said Ichan “is not an honest man” and “does not have a good reputation.”
Here are some highlights from the exchange. The first two minutes are especially combative:
The two have since made up – sort of — by saying they have “agreed to disagree” about Herbalife.
But questions about the Ackman’s efforts on Capitol Hill remain.
Herbalife “seeks to exploit the extremely poor in new and existing markets,” Ackman told investors in July while delivering a slideshow excoriating the company. At one point, the billionaire even choked up, saying, “It’s criminal. It’s time to shut [Herbalife] down.”
“When it comes to investing, all’s fair in love and war. But that ends when an investor recruits the government to get involved,” Ryan Ellis, tax-policy director at Americans for Tax Reform, told Watchdog.org. “Hiring lobbyists and radical pressure groups in order to incite liberal Congressmen against your business competitor is not fair. In fact, it’s a type of bullying, and it should be out of bounds in American business competition.”