Herbalife: SEC Now Probing Icahn, Soros, Loeb

| About: Herbalife Ltd. (HLF)

Summary

Bill Ackman acts in a calculated, legal and precise manner - and does so with substantial veracity - when he invests.

Despite claims that Mr. Ackman should be investigated for market manipulation from the bulls, it is now Mr. Icahn, Mr. Soros, et al that are being probed by the SEC.

It's "Friday Movie Day" for Ackman and Pershing Square - pizza is available in the lunch room!

Mr. Icahn is likely thinking long and hard about how he's going to get himself out of Herbalife.

You can say what you want about Bill Ackman, but if you've watched the guy operate, you understand he does things in an extremely precise, calculated manner.

Short of the Giovanni Bohorquez mess that ensued on Nightline by an overly rambunctious anchor (my guess was Bohorquez was not being handled by Ackman himself), Bill Ackman rarely makes a move, trade, or disclosure unless he is 110% behind it. And still, with the Bohorquez agreement, Ackman didn't do anything illegal at all, it just could have looked better than it did had Bohorquez provided full transparency to Nightline from the get go. The facts are, Bohorquez told the truth, while anchor Brian Ross tried to verbally assault him and "uncover" dirt that wasn't there to begin with. No Emmy for Ross this year, is my guess.

In terms of Ackman's transparency, honesty, and legal standards, if you haven't read "Confidence Game", give it a look one of these days. You'll see exactly what I'm talking about. This is a guy who actually likes SEC depositions, because he feels like it can give him more time to get his point across to regulators. This is a guy who gives his own lawyers heartburn from the amount of information he likes to cover and speak to when addressing his positions. When Ackman has the evidence on his side, like he does with Herbalife (NYSE:HLF), he's not afraid of broaching the subject.

So, whistleblower-gate isn't nearly as big of a deal as Brian Ross would have liked to have made it (read: it isn't a big deal at all), and the Herbalife saga plays on.

Naturally, all I've heard from longs, bulls, and distributors on Twitter (NYSE:TWTR) for the last year is that Ackman and his supporters were all going to jail for market manipulation. I found this hilarious for a couple of reasons:

1. If you've profiled Ackman and know what kind of person he is, you know he'd never do anything that's considered illegal. His counsel, no doubt, has an excellent command of the securities laws surrounding activist investing.

2. Supporters of Ackman, like myself, have simply drawn our own conclusions based on the public evidence available, and positioned accordingly.

Ergo, if it was market manipulation to stake a position in a company and then argue your point, there'd be no Seeking Alpha, Motley Fool, The Street, CNBC, Fox Business News, et al. The entire financial commentary industry would collapse.

But that hasn't stopped uninformed bloggers/Twitter users from claiming that Ackman was going to be probed by the SEC.

And, yet again, little by little, the shorts continue to get bits and pieces of exoneration - as the evidence continues to pile up against the long argument, which is being heavily scrutinized by an "Alphabet Soup" constituency of regulatory organizations.

Early this morning, it broke that the SEC was, in fact, looking into market manipulation. Instead of looking at Ackman, however, it broke that they were looking at the collusion to bet against Ackman and potentially try and catalyze "the mother of all short squeezes". Reuters reported this morning:

The U.S. Securities and Exchange Commission (SEC) is probing whether a number of hedge funds many have acted improperly when they made bets on nutrition and weight loss company Herbalife Ltd last year, a source said.

The regulator is reviewing whether investors may have engaged in market manipulation or failed to properly disclose that they were working as a group when they lined up against billionaire investor William Ackman's short bet against the company, said the person, who is familiar with the investigation put not permitted to discuss it publicly.

A spokesman for the SEC was not immediately available to comment. An official at Herbalife also declined to comment.

The story was first reported by the New York Times.

Ackman publicly announced in December 2012 that his $13.6 billion Pershing Square Capital Management fund had wagered $1 billion short bet, alleging that Herbalife was running a pyramid scheme and that its stock price would eventually drop to zero.

The SEC, the Federal Trade Commission (FTC), several state prosecutors and the Federal Bureau of Investigation (FBI) are looking into these allegations.

A spokeswoman for Pershing Square did not immediately respond to a request for comment.

Oops! Looks like Mr. Icahn is now in the hot seat. And, I'll guess that his recent diplomacy with Mr. Ackman isn't going to mean much to the regulators looking into this one.

In addition, this morning, the time was set for Ackman's distributor documentary. It's going to be put on at 11 AM EST, and can be webcast through factsaboutherbalife.com. As reported earlier this week, this documentary seeks to put a face to some of the victims that have been bilked out of money under the guise of a "get rich" business opportunity while being an Herbalife distributor.

Herbalife has just recently curbed its "get rich" pitch, claiming only a small amount of distributors sell to make an extra couple hundred dollars a month. Too little, too late, Des Walsh.

It was previously disclosed that Connie Chung was supposed to moderate the Q&A after the screening, which is open only to media and regulators at an undisclosed location. Chung, likely after getting some serious heat from Herbalife longs, opted not to take on the role as of yesterday. She's going to be replaced by noted MLM critic, Bob Fitzpatrick.

Mr. Icahn, on the other hand, seems to be arranging for his exit.

As Herbalife continues to prop up its own stock price through its buyback, there's no doubt in my mind that longs are thinking, "is this the last time I'm going to ever be able to sell back at these prices?" With a daily average volume of 3.1 million shares - at around $55 share - it could cost as much as $165 million a day in bidding to keep Herbalife's stock propped up. The company is absolutely pouring through its cash in an effort to feign that the stock has bullish momentum behind it.

I'm predicting that this won't last long, and I continue to contend that with the regulatory investigations going on in the background, this should be a $35 stock, at best.

As Mr. Icahn and Mr. Ackman have recently buried their old grudge (at least that's what has been reported), one has to wonder about the hubris involved, should Mr. Icahn unwind his long position and (even better) potentially swing around and go short with Mr. Ackman.

That would be a headline.

As the days go by and the story pushes forward, I continue to believe that Herbalife bears and shorts are one day closer to regulatory exoneration. There simply seems to be no way in which Herbalife can be allowed to continue to conduct its business in the fashion that it's been doing it moving forward from this. The spotlight is on the regulators to do the right thing here, and the public is anxiously awaiting an outcome. There is no doubt: saving millions more from potentially being defrauded out of their money from false income claims and purchased legitimacy should be the FTC's main focus.

Cutting the Herbalife sieve off at the head is the best way to do that.

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.