DealBook’s Ben Protess and Alexandra Stevenson have a big article on how federal authorities are looking into a number of hedge funds on both sides of the Herbalife trade.
Authorities are looking into well-timed bets in Herbalife stock.
No one has been accused of any wrongdoing.
DealBook’s report also includes a little tid-bit about how a junior-level Pershing Square Capital Management employee told his roommate about the fund’s Herbalife short position before it was publicly announced.
DealBook points out that this isn’t necessarily illegal. However, the roommate is said to have shorted Herbalife and made about $US20,000, the report said.
Before the announcement, the people briefed on the matter said, one of Mr. Ackman’s junior employees mentioned the planned trade to his roommate.
The conversation was not necessarily illegal. The junior employee, who like Pershing Square has not been accused of any wrongdoing, may have shared information with his roommate in strict confidence.
But the roommate may have crossed a legal line when he helped a friend place a bet against Herbalife. After Mr. Ackman’s presentation pummelled the company’s stock, the people said, the friend reaped at least $US20,000.
The junior employee has left Pershing Square. He left the fund for reasons unrelated to the investigation, the report said. The junior level employee also hasn’t been accused of any wrongdoing.
Also, the report points out that the roommate could be liable if he broke an explicit promise to keep it confidential.
(Side note: Both of the analysts who worked on Pershing Square’s Herbalife short left the fund last year.)
The hedge fund battle over Herbalife, a multi-level marketing company that sells weight loss products, has been going on for over a year now.
Bill Ackman, who runs Pershing Square, is shorting $US1 billion worth of Herbalife, with a price target of $US0. He believes the company operates as a “pyramid scheme” that targets lower-income individuals. As a result, he believes regulators, specifically the Federal Trade Commission, will shut it down.
Ackman’s long-time rival, billionaire investor Carl Icahn, owns a massive long position in the company. He bought the stock shortly after Ackman publicly revealed his short position. He owns 16.8% of Herbalife’s shares. He has also said that he believes Ackman will be the victim of a “the mother of all short squeezes.”
In the months that followed Ackman’s massive 342-slide presentation, Herbalife’s shares surged to all-time highs. Pershing Square had racked up hundreds of millions in paper-losses.
Back in March, though, Herbalife confirmed that it’s under investigation by the FTC.
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