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

Q&A: Decathlon Capital On Revenue-Based Alternative Lending

Oct 30 2017 | 3:49pm ET

The explosion in private credit activity since the end of the financial crisis is...

Lifestyle

CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Saxby: Not All EBITDA Is Created Equal

Nov 30 2017 | 8:02pm ET

Record levels of dry powder are driving competition among private equity firms to...