Full Disclosure: I have never been paid a dime by Mr. Ackman. I have never been offered a dime by Mr. Ackman. I have never been offered financial compensation of any kind by Pershing Square or by an agent of Pershing Square. I am not on the Pershing Square payroll in any way.
Shockingly, Herbalife (NYSE:HLF) can be found a fraud by observers without the presence of a pecuniary interest.
Q. Whether or not one stands to profit from targeting Herbalife, does it make the company any less of a fraud? Last night, Herbalife investors were treated to a bit of investigative journalism on ABC by Brian Ross, or was it yellow journalism?
As I watched the piece on my DVR this morning, I wondered whether or not the segment was more about uncovering the truth about Herbalife or hyping up the reporter himself?
How many hero shots of the ABC reporter did we see in the piece? You can watch the bit here and judge for yourself.
A. For me - one too many.
Gotcha journalism seems so passe, perhaps. Step one, invite someone to be interviewed. Step two, give them the impression that you will be friendly. Step three, ambush them with a camera crew and a biased line of questioning or buried lead.
This was the way ABC news decided to treat a Herbalife whistleblower who has been indemnified against loss by Pershing Square. It seemed obvious to me that the ABC analysis was incomplete.
Unfortunately, ABC also left viewers begging the obvious question: "What was it that the whistleblower had to say about the company?"
It struck me as curious that this kind of testimony was good enough for a sworn affidavit to federal regulators, and yet ABC took a pass.
What did it have to lose?
Still, this morning, we learn that Herbalife itself is spinning the ABC piece as a PR victory. According to Herbalife, Mr. Ackman is buying falsehoods and untruths for a fee. If only Mr. Ackman's claims were false and his truths untrue Herbalife might have a point.
Instead, it continues with its argumentum ad hominem nonsense, while failing to address the obvious notion that its pay plan is a pyramid scheme that sells the American Dream in the form of SUPERVISORSHIPS to unsophisticated recruits.
A word on whistleblowers.
Q. If paying whistleblowers for sworn testimony was unethical or illegal, then why do the FTC and SEC both have whistleblower programs that compensate individuals who come forward with evidence?
The answer is obvious. Snitches tend not to be treated kindly by the people they snitch upon. There is ample evidence of people being murdered outright in order to prevent them from delivering sworn testimony that might lead to the criminal conviction of another. Others may be punished with economic retribution too.
It makes perfect sense for Mr. Ackman to indemnify a whistleblower from economic harm, if said whistle blower will then come forward with sworn testimony. Testimony that is taken under oath can lead to perjury charges, if found later to be false. It seems highly unlikely that Herbalife's whistleblower would give up his job, testify against the company, only to receive an indemnification contract should he lose employment in the future.
Are we to believe that the whistleblower's safety net now makes him a liar?
Or, is the mountain of evidence that Herbalifers routinely exaggerate income claims, product efficacy claims, etc. closer to the truth.
The PR war between Herbalife and the rest of the world is a sideshow anyway. The real legwork on this company is now being done in the halls of justice. Investigations not unlike the one done by ABC's undercover distributors are taking place, legal briefs are being prepared, dossiers of evidence are being stitched together.
In the interim, Herbalife continues to try to hide behind its Gold Standard Guarantee, which is a fig leaf at best, and more likely resembles the attire of Lady Godiva. Also, the HLF PR machine continues to spew out nonsense and attempt to discredit Mr. Ackman. Heck, even Mr. Icahn seems to have put down his sword on that front.
Why? The rest of the world is now focused on the conduct of the company itself.
I remain confident that there will be more jabs thrown in the PR war over the coming weeks. These jabs will all be interesting to watch. The stock price will probably bob and weave as each punch is unleashed.
Still, the knockout punch has yet to be delivered. When it will land is anyone's guess.
When I watch Des Walsh interviewed on TV, I wonder to myself, does this man know he could go to jail? I must admit, Mr. Walsh is a master craftsman of PR spin and has no doubt kissed the Blarney stone. Trouble is, he is also probably facing civil and criminal investigation too.
Inside the magic show that is a Herbalife Extravaganza, we have all the evidence we need that Herbalife is a confidence game. Yet still, Mr. Walsh says "that's not the Herbalife I know..."
Q. Out of whose pockets do you think your massive remuneration comes from, Mr. Walsh? Here's a clue - perhaps you should revisit your company's churn data.
Overall, when I watch the undercover footage gathered by ABC on Herbalife opportunity meetings, nutrition clubs, etc. I don't feel angry at the distributors. Rather, I feel sorry for them. How desperate they must be to stand up on stage or in front of somebody who is ill only to deliver complete and utter nonsense.
"If you get 5 and they get and they get 5, etc. ...you'll be making $40,000 a month..."
"I'm 40 and I got pregnant."
"This lady had a brain tumor that went away."
Monkey see. Monkey do.
Still - that's not the Herbalife Mr. Walsh knows. Evidently, this small sample set has gone rogue, while everyone else wears a halo.
Herbalife is an incredible company. Everything it says is incredible. Every yarn it spins is complete and utter nonsense.
Because the company is the sponsor and marketer of a global pyramid scheme that will be shut down by regulators, no matter how many potshots it takes at Mr. Ackman.
Herbalife can attack Mr. Ackman, piggyback on Mr. Ross' bit on ABC, crank up the jingoism and unleash all of its propaganda.
Unfortunately, however, it can't run away from the evidence.
Herbalife is an endless chain recruiting scam that uses an overpriced placebo and an advance fee con (see American Hustle) to separate low-income Latinos from their hard-earned money.
The sooner regulators shut it down, the better.
Disclosure: I am short HLF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.