- June-July 2012: The SEC opens another investigation in Herbalife based on Einhorn’s questions.
- December 2012: Bill Ackman announces a $1 billion short, followed by a 300+ page presentation at the Ira Sohn Conference, alleging why Herbalife is a pyramid scheme.
- January 2013: Hedge fund manager Daniel Loeb calls Ackman’s short and takes 8% stake in Herbalife. Other hedge fund manager Carl Icahn jumps on board with Loeb, taking another long position. Other, other hedge fund manager and short-seller Jim Chanos suggests Ackman may be right about Herbalife, allowing for the possibility of his own short position in the company. Other, other, other hedge fund manager Whitney Tilson, creator of the Value Investing Congress, agrees with Ackman and takes a short position.
Seemingly intrigued by David Einhorn’s questions and the management’s inability to provide thorough answers, the SEC again looked into the business practices of Herbalife. The result was the same—no further action recommended at this time.
You know this part; it’s why you can’t turn on CNBC without hearing the words “pyramid scheme” 10 times.
Typically, big-shot money managers are quiet about their positions and don’t weigh in on the hot stories of the day. But, for some reason, everyone with access to a megaphone and a billion dollars has felt the need to chime in on Herbalife and throw some substantial amount of money on either end of the war. The managers mentioned above are just the ones I found in my research; there could be others involved. Still, every one of these men mentioned above is a world-class investor that legions of investors look to for guidance. So much for guidance…
So there you have it, more than five years’ worth of Herbalife drama summed up in less than 800 words. The most concrete trend through all of this: The stock has climbed more than 100% since the L.A.-branch SEC investigation. Does this mean that none of the negative claims are valid? Not at all. It means that despite a substantial amount of questions and doubt regarding the company’s business model, profits still matter most to the Street.
In my opinion, the one thing that could bring this company down right now is not a fund manager, but the United States government. Invest wisely, Fools, and please don’t go anywhere near this stock until the dust settles.
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The article 5 Years of Herbalife Drama in Review originally appeared on Fool.com.
Fool contributor Michael B. Lewis has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $50 Calls on Herbalife Ltd. (NYSE:HLF). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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