Astroturf-marketing campaigns and manufactured news events are standard fare for big corporations looking to influence lawmakers, regulators and the public. We've grown numb to their antics. So it's usually not a big story when some hare-brained promotion or lobbying effort goes wildly off track.
But when a billionaire hedge-fund manager uses the same techniques to attack a company whose stock he's shorting, the dark arts of public relations suddenly seem novel again. And so the New York Times today delivered a well-researched opus on Bill Ackman's hilariously inept crusade against Herbalife Ltd., the nutritional-products distributor.
I saw nothing in the Times article suggesting Ackman or his firm did anything illegal. He shorted the stock in late 2012. He had a billion dollars riding on the bet, last we heard. And he's been trying to convince government officials that Herbalife is a pyramid scheme, so that they'll open investigations into the company and put it out of business. He seems to believe every word of what he says about Herbalife.
But as an investment thesis, shorting Herbalife has been a horrible idea. Herbalife's stock has failed to cooperate with Ackman: It more than doubled in 2013, although it's been down this year.Plenty of other hedge-fund managers could have told him from experience that the prospect of future regulatory action is rarely a good catalyst when shorting a stock. The government might not act, even if the company is a fraud.
Undeterred, Ackman's firm, Pershing Square Capital Management, hired a small army of lobbyists and P.R. specialists to run a national campaign in hopes of making his prophecy come true. They in turn have enlisted people such as U.S. Senator Ed Markey of Massachusetts and U.S. Representative Linda Sanchez of California, both Democrats, to send letters to regulators (without mentioning Ackman's role, of course) asking for investigations of Herbalife.
Civil-rights groups representing minority voters have lined up to take Pershing's money and sent their own letters (often worded identically) to various muckety-mucks complaining about Herbalife's sales tactics. When regulators did nothing in response, citing a lack of victims, Ackman threw money at an effort to find victims.
Still, the regulators have done nothing. And who can blame them? If they did something now, they would look like Ackman's tools.
Don't get too mad at Ackman, though. Laugh at him, sure. This is cheeky stuff. But he's only playing the system the way it cries out to be played. One of the groups that fronted for Ackman's anti-Herbalife campaign, the League of United Latin American Citizens, took $10,000 from Pershing last year. As the Times pointed out, if you look at the same page on Lulac's website where that donation is listed, you'll see that Lulac also took money from the likes of General Motors, Coca Cola and Google. Those companies donated to Lulac for the same reason that Ackman's firm did: to advance their interests.
Just about every big company, including Herbalife, gives money to lobbyists, P.R. firms and nonprofits to promote its business. There really are no rules, as long as you don't break the law or libel somebody. The difference with Ackman is that he's promoting his business by trying to hurt Herbalife's business. If you find that offensive, you can take satisfaction in the fact that he's failing.
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter at @JonathanWeil.)
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