His last presentation re Herbalife at the end of 2012 was interesting and seemed to paint them as a sketchy company, but even after that several big investors ignored his case and took positive positions in the stock and Herbalife recovered.
He may have a case but at this point it’s starting to look like less like a good faith public service and more like an attempt at stock manipulation to ensure the end of his negative stock bets coming off in his favor.
There is one of those bizarre Herbalife “anti-stores” in Chicago on Kedzie, right where the L crosses the street, in a heavily Hispanic neighborhood. From[Business Insider:](Read more: Michael Johnson Yells at HLF Protesters - Business Insider)
I honestly don’t care if Ackman is manipulating the stock as long as he drives the company into bankruptcy.
To answer the title of the thread, I’d say that it definitely skirts closely.
Obviously, companies and individuals can release information that is beneficial or detrimental to a publicly traded organization, or else newspapers would have a hard time. But newspapers presumably don’t trade stocks based on their information, previous to going live with the information.
Ackman’s primary defenses would presumably be that:
He won’t personally profit.
He’s not “artificially” inflating nor deflating the price of the stocks, since the information that he’s relaying is factual information that anyone could discover, nor is he hiring anyone to relay this information. Others (e.g. the media) are coming to him and asking him to share what his researchers told his group.
#1 is tenuous, since his company lives off of trading stocks. But the courts would have a hard time deciding whether what he’s doing counts more towards the first amendment and serving the public interest, versus market manipulation.
I think your second is also extremely dubious, if not outright false.
Nobody is coming to Ackman. He has spent an enormous amount of time and money promoting his view on Herbalife to anyone who will listen, from regulators, legislators, analysts and the public at large.
His entire campaign has cost him $50M so far (that includes his reaseach, analysis and lobbying - not his investment losses). According to Herbalife, Ackman has “the equivalent of 25.7 million shares in put options that expire on January 17, 2015”. I don’t know if Ackman is right or wrong about the company, but if he’s right and it does eventually tank, I’d prefer to see it happen after that date.
Having and publishing a bearish view on a stock is not manipulation if you honestly believe your information is true. I’d argue that overall there is waaaaay more manipulation meant to inflate stock prices than deflate them.
Both sides are claiming victory, and what you think of the settlement is largely determined by what you think of the original allegations.
If you believe that the entire business model is based on fraud, then being forced to change the way of doing business (with an outside monitor) would eventually put the company out of business. So Ackman and his allies could believe they’ve won.
If you believe the business model is based on legitimate profit, then you think the company will continue to do well and now has the FTC investigation behind it.
So far the market seems to be adopting the latter view. But that’s short term and could change.