Herbalife Trades Under Investigation

May 5 2014 | 11:28am ET

Nutritional supplements company Herbalife, accused by Pershing Square Capital Management of being a pyramid scheme, faces a raft of state and federal investigations. But it isn’t alone.

The Federal Bureau of Investigation and Securities and Exchange Commission are looking at investors in Herbalife—both on the long and short side—to see if any improper trading occurred amidst the high-profile dispute between the company and Pershing Square, one that has also drawn in other prominent hedge fund managers, such as Carl Icahn, George Soros and Third Point’s Daniel Loeb.

According to The New York Times, the FBI and SEC are looking into investors with contrasting opinions on Herbalife. The SEC is seeking information from Icahn and Soros, among others, while both the regulator and the FBI are investigating whether Pershing Square improperly pushed other investors to short Herbalife prior to its announcement of its own $1 billion short bet in December 2012. Indeed, the SEC sought information from Pershing Square in a probe of a person outside of the hedge fund who shorted Herbalife after learning of its plans. The person is a roommate of a junior employee, who allegedly mentioned the Herbalife bet. The roommate earned at least $20,000 trading on the information.

Pershing Square has denied leaking “to anyone any information about its Herbalife position or its Dec. 20, 2012, presentation prior to its public release. In fact, the firm went to great lengths to avoid any premature disclosure.”

The FBI and SEC are looking for evidence of insider trading, disclosure violations or market manipulation. No such evidence has yet emerged, according to the Times.

Pershing Square founder William Ackman’s public campaign against Herbalife reinvigorated a nearly decade-long feud with Icahn, who made a huge long investment in the company. The two men spent the better part of a year bickering through the media before burying the hatchet last month.


In Depth

GSAM's Papagiannis: Liquid Alternatives For The Long Run

Apr 21 2017 | 8:44pm ET

Interest in liquid alternatives cooled a bit last year amid a broad shift in investor...

Lifestyle

Aston Martin Returns To Debt Market As DB11 Drives Turnaround

Mar 31 2017 | 5:21pm ET

James Bond’s preferred carmaker is returning to the public debt markets for the...

Guest Contributor

Debunking Conventional Investment Wisdom (Part II)

Apr 17 2017 | 5:56pm ET

The alternative investment industry is currently replete with buzzwords around data...

 

From the current issue of