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HLF: Ackman Has Shot Himself In The Foot - BUY

|Includes: Herbalife Nutrition Ltd. (HLF)

Note to readers: I submitted what follows as an article. The SA editors decided not to publish it. So, I am publishing it here for anyone interested. If you read it and find it useful, you can pass along the link.

Also, I'd be interested if you can recommend any other sites I might publish my bullish HLF articles.

Thank you.

Disclosure: I am long HLF. Although I am a long term investor and rarely do short-term trading, I reserve the right to trade in the stock at any time.

HLF: Ackman Has Shot Himself In The Foot - BUY

· Ackman's war campaign against HLF, using $50-75 million of his clients' money, might be the broadest and deepest effort to destroy a company in all Wall Street history.

· We haven't heard much out of the Ackman camp for the past month or two. It is no surprise. Read on.

· Ackman has a "China Problem" and an "Alvarez Problem" that has and will have an unexpectedly strong negative impact on his anti-HLF campaign.

· Ackman has become persona non grata among politicians, ethnic advocacy groups and anyone else concerned about public exposure of their Ackman-related activities.

· Ackman has lost all credibility with the media and the public at large.

· Seemingly complex stories can actually be simple. Ackman's intense nationwide search has not found a single "verified victim". He only has a theory: there should be victims.

· When it comes to HLF, Ackman's "activism" is all but gone and his future impact on the stock price will be minimal.

· The Bulls win if HLF fundamentals improve and regulatory action, if any, is modest. Ackman's absence will have a positive impact on fundamentals.

· The Bears win if HLF fundamentals weaken and/or the regulatory action is potentially serious. Note that any regulatory action will manifest itself in allegations, charges and a lawsuit, not unilateral action.


"Ackman" is shorthand for Bill Ackman personally and, depending on the context, his $20 billion dollar firm Pershing Square Capital Management.

"Ackman's Army" means the huge number of mercenaries he's hired, including State and Federal lobbyists, law firms, accounting firms, public relations firms, public affairs firms, consultants, analysts and anyone else he thinks he might need to help destroy HLF.

"Agencies" is shorthand for the panoply of Federal and State Regulatory and Law Enforcement Agencies Ackman has tried to intimidate, coerce or otherwise convince to help him drive down HLF's stock. For Ackman to win, the most important of those Agencies are the FTC and SEC, but other State or Federal Agencies also could hurt HLF's business.

A "Verified Victim" means: Any individual…

Who has alleged he/she has lost significant money because of alleged HLF wrongdoing, and

… whose story has been checked out for accuracy, and

… whose alleged financial losses can be documented, and

… who can show that he/she did not receive adequate information up front about the possibility of failure, and

… whose alleged losses are directly attributable to alleged systematic problems caused by HLF corporate policies instead of non-systematic behavior of some independent HLF distributors, and

…whose attempts to be successful involved serious hard work and focus, and

… whose losses (if any) are different from normal risk associated with starting any new business.

HLF: The Bear Case and the Bull Case - Simplified

Those who are short HLF believe their success will be driven by three factors:

· A belief that one or more of the Agencies will take serious action against HLF.

· HLF's currently deteriorating fundamentals will continue and possibly get worse.

· Ackman's relentless anti-HLF campaign and P.R. program will continue to put increasing pressure on the Agencies and continue to have a negative impact on HLF's business.

Conversely, those of us who are long believe our success will be driven by three factors:

· There might not be any regulatory action at all, but even if there is it will be relatively mild.

· The company's fundamentals are basically strong and significant sales and earnings growth will return over the next few quarters.

· Ackman has lost his credibility and his power to sway the public, various ethnic and advocacy groups, politicians and the Agencies.


The analysis that follows demonstrates that Ackman has lost his credibility with the Agencies and the public. His actions and public exposures of some of his previously secret anti-HLF activities have made his previous allies afraid to deal with him. His "China problem" and his "Alvarez Problem" have subjected him to regulatory scrutiny, which has muzzled his sensationalistic accusations as well as his massive publicity campaign. His "Markey Problem" and his 'Sanchez Problem" have made him and his Army persona non-grata in the political sphere. He has lost all credibility with the public and media because of his misstatements, unmet promises, untrue allegations, exposure of questionable campaign contributions, exposure of secret collusion with politicians and ethnic advocacy groups and other factors. And most crucial of all, his entire case depends on his ability to demonstrate that HLF 's allegedly inappropriate businesses practices create real victims. However, despite Ackman's claim that he has "1,000 victims", the fact remains that he has never produced a single Verified Victim.

Ackman's War Against HLF - Strategies and Execution

Ackman has said he has spent at least $50 million (some news reports estimate the total might be as much as $75 million) of his Limited Partners' (L.P.) money - NOT his personal or Pershing Square's money - to destroy HLF and generate a profit of as much as $1,000,000,000 ($ 1-BILLION) for himself, his firm and his clients.

Spending that much money to wage war on a company and it's employees is likely unprecedented in Wall Street history. But, in perspective, if Ackman were successful in destroying HLF his war would cost only about 5 to 8% of his profit.

In retrospect, his War plan is clear. He set out to:

· Intimidate/coerce/persuade the Agencies to put HLF out of business immediately, and/or

· Intimidate/coerce/persuade the Agencies to begin and carry out formal investigations of HLF's business practices, and/or

· Hurt HLF's fundamental business so much that declining fundamental sales/earnings would drive the stock down.

This is what Ackman's L.P.'s $50 - 75 mm bought so far…

· Ackman hired a huge international mercenary Army - the best money can buy - to direct and participate in his war to destroy HLF.

· Ackman personally and his Army of "Public Affairs" firms - a.k.a. lobbyists - enlisted a staggering number of politicians and elected officials from every level of government - from small town mayors and City Councilmen all the way up to Members of the House of Representatives and Senate. Ackman has a long history of making campaign contributions to a long list of politicians - nearly 100% Democrats - and all his anti-HLF political recruits are Democrats. All were engaged to participate in Army-directed and led anti-HLF activities focused on pressuring the Agencies to do Ackman's bidding. Ackman's Army of lobbyists worked in secret and totally behind the scenes until exposed by investigative reporters.

· Ackman and his Army engaged a nationwide, nearly uncountable number of Hispanic and other ethnic local and national non-profit advocacy groups and their individual leaders. The Army directed and assisted the groups and individuals to:

o Organize and conduct public demonstrations.

o Sign anti-HLF letters - essentially written by Ackman's Army - to local and national Agencies demanding they "do something".

o Be part of an intense search for alleged "victims" who would be used to sign form letters and otherwise make allegations against HLF.

In some documented cases, the Army engaged in what appears to be a "pay-for-anti-HLF testimony" scheme. The Army also worked secretly in this arena, again until investigative reporters exposed their activities.

· Ackman hired at least one alleged "whistleblower". By the time investigative reporters exposed the arrangement, Ackman had paid him $80,000 with an agreement to pay him up to $3.8 million under certain circumstances.

· Ackman's Army of high-powered law firms and attorneys wrote extensive and arcane legal arguments about why they believed HLF's operations were in egregious violation of MLM regulations and laws. Then their lobbyists arranged for the lawyers to make presentations to every potentially influential politician and every Agency in sight. Parenthetically, it's interesting to imagine being a fly on the wall at those meetings. Ackman's high-powered $1,000/hour (or more) lawyers - who had become instant-experts in MLM law - were trying to "educate" the experienced Agency people. Their message was that the Agencies' people weren't smart enough to see what was going on right under their noses and it's a good thing Ackman's people were there to show them what they'd missed.

· Ackman's Army of high-powered accounting firms and accountants scrutinized every detail of every public document HLF produced. Then they demanded HLF's auditors produce even more detailed data the Army said would prove their allegations. Not a single data point demanded ever was or currently is required by law or regulation. It was the old "you are guilty until you prove yourself innocent" technique.

· Ackman and his Army have orchestrated a brilliantly conceived and executed P.R. campaign, covered by a Wall Street and public press corps eager to be part of the battle.

Ackman's Score Card

Ackman had two notable fundamental successes:

· His Army's efforts have resulted in several investigations into HLF's business practices by many of the Agencies; as of now, most are unresolved and likely still active. However, the few Agency investigations so far resolved have totally rejected Ackman's allegations and were closed without action.

· HLF's revenue and profit growth trends have deteriorated. It is likely at least part of the reason is that Ackman's enormous number of allegations - presented both dramatically and as facts - and his relentless P.R. campaign to promote them all over the country have discouraged some of HLF's business partners and end clients.

Ackman's P.R. Campaign

Ackman has used his L.P.'s money to hire the best P.R. experts money can buy. His P.R. campaign has been intense and relentless, and he has delivered it brilliantly through a national and international press corps that is more than eager to showcase him.

And Ackman is the star of his own show! He has built his "press appeal" over many years because he has one of the best investment records around, he is a powerful billionaire and he controls huge amounts of other peoples' money to use in his corporate wars. Also, he is brilliant, attractive, charismatic, very well spoken, eminently quotable and always available for an interview "on-deadline". The press loves a corporate prizefight and watching a powerful Wall Streeter take on a powerful corporation is great theater. So, the press is eager to report on anything he says or does, like a lapdog anticipating a dog treat. And, as the kicker, during the course of any press contact he just might reveal a new scoop. In short, Ackman is a "great interview".

It is impossible to overstate the power of Ackman's anti-HLF P.R. campaign. Do a search of any key phrase from any of Ackman's anti-HLF presentations and you'll find headline references to it from media large and small all over the country. When all the media in the country is reporting Ackman's allegations, there is little doubt that Agency people, "HLF people" and investors read it, see it or hear it, too. His anti-HLF campaign has kept indirect pressure on the Agencies. It has likely had negative impact on HLF's business as it reduced interest in both the HLF business opportunity as well as consumer purchases of HLF products. And, except for large sophisticated institutional investors - who are almost unanimously lined up on the other side of Ackman's trade - Ackman's anti-HLF P.R. campaign has almost certainly dampened public enthusiasm for the stock.

That is why it is so important to the Company and the stock that Ackman's anti-HLF campaign is effectively over.

Ackman's "China Problem" and "Alvarez Problem" Effectively Kill His Anti-HLF P.R. Campaign

Ackman and his P.R. campaign have been AWOL for the past month or two. That is no accident.

There are two Agency investigations swirling around Ackman and Pershing Square that will combine to muzzle his anti-HLF P.R. campaign. The two investigations have not yet involved Ackman or Pershing Square directly. But because those investigations are underway on his flanks, Ackman and his lawyers know that the Agencies are watching him very closely.

The first investigation relates to Ackman's allegations about HLF's China business. In March 2014 Ackman gave a major presentation on HLF's business in China, with the usual large slide show. He also delivered his slide show and alleged evidence to all the Agencies. Not surprisingly, Ackman's China presentations concluded that HLF's China sales practices were seriously and clearly illegal in that country. To date, the Chinese government has not responded at all to Ackman's allegations and HLF's China business continues to grow rapidly.

Contrary to Ackman's strategy, instead of negatively influencing HLF's business, the China allegations have led to investigations into potential market manipulation by one or more subcontractors to Ackman's Chinese research team. On March 12, 2015 The Wall Street Journal reported that Prosecutors in the Manhattan U.S. attorney's office and New York field office of the FBI have been investigating whether the sub-contractors made false statements about HLF in order to drive down the stock. Following up on the March story, on April 1, 2015 the Journal reported that the prosecutors have requested documents and are talking with Aaron Smith-Levin, a consultant hired by Ackman to investigate HLF's China business. Prosecutors are examining whether Smith-Levin and/or others related to him attempted to manipulate HLF stock by producing false information that was sent to regulators and used in Ackman's China presentation. Ackman has said neither the FBI nor the Manhattan District Attorney's office has interviewed anyone at Pershing Square. But, the investigations cast doubt on Ackman's allegations about HLF's China business.

The second investigation relates to Ackman and his Army's activities in Connecticut. Part of Ackman's Army attacked HLF in CT with the usual objective: intimidate, coerce or persuade Mr. George Jepsen, CT's Attorney General, to prosecute HLF. It has been widely reported that Ackman hired Global Strategy Group to gather evidence and lead much of his HLF attack around the world and in CT GSG's effort was a full-court press. GSG has extensive political ties in CT; among other things it led CT Governor Dan Malloy's successful 2011 election campaign. GSG hired Mantilla Leadership Solutions as a sub-contractor in CT. MLS is a political consulting firm belonging to former CT legislator Evelyn Mantilla. Among other activities, GSG and MLS initiated a letter writing campaign that generated approximately 26 letters from consumers and one from Mantilla herself. The letters included a number of "victim narratives", but not a single one of the alleged victim's stories was ever verified.

Ackman's people sent their letters to both AG Jepsen and FTC Chairwoman Edith Ramirez. Most seem like "form letters". All accuse HLF of being an illegal pyramid scheme and demand Jepsen and Ramirez open investigations.

Beginning in late 2013, Jepsen began an intense investigation of the allegations. He interviewed both Ackman and executives from HLF. In March 2015 Mr. Jepsen's office said, "…[his office] investigated the allegations in every letter and was unable to substantiate any of them". Jaclyn Falkowski, a spokeswoman for Jepsen, said in an emailed statement: "While some consumers did express dissatisfaction with products or services in our follow-up contact, we have been unable to substantiate allegations that Herbalife is operating a pyramid scheme." Falkowski reiterated that Jepsen's office followed up on all the complaints, including the victim narratives. "Over the course of investigating the complaints, some complainants were nonresponsive to our efforts to communicate with them by both phone and, when phone calls were not returned, by letter. Those who were responsive often did not recall submitting a complaint," she said. "Some complainants who did respond had issues with the products themselves or expressed concerns that they were not able to earn as much as they anticipated, but they did not provide information supporting allegations that Herbalife is operating a pyramid scheme."

Mr. Jepsen went on to say his office no longer has an active investigation into Herbalife.

And here is what is most important:

Mr. Israel Alvarez, one of the letter writers, told The NY Times that he doesn't remember signing the letter and doesn't know anyone harmed by HLF. The NY Post and other sources report Mr. Alvarez has been called to testify before a NY State Grand Jury.

The China and CT/Alvarez investigations are potentially very serious for Ackman and Pershing Square. And the mere fact that there are two law enforcement investigations swirling around Ackman and Pershing Square's periphery will likely put a serious dent in Ackman's anti-HLF campaign. Consider Jenna Dabbs, senior counsel at Pershing Square in charge of compliance and regulatory issues. Ackman hired her two days before the WSJ broke the story on the China investigation. As soon as she joined Pershing Square, she was faced with two previously absent certainties. First, although neither Ackman nor Pershing Square have been notified they are targets of the investigations, it is virtually certain both the FBI and the U.S. Prosecutors Office are scrutinizing everything Ackman and Pershing Square ever wrote or said about HLF - any maybe his other investments, too - and are paying special attention to anything he says or writes going forward. Second, the NY Grand Jury might find something serious enough about Ackman's CT activities to warrant further legal action.

So, Ms. Dabbs, what do you advise Ackman to do? The very first advice would be, "Put a lid on it!" It is certain going forward Ackman's law firm will insist on pre-clearing absolutely everything he says or writes about HLF. It is certain Ackman will have to stay 100% on legally pre-cleared script. And, instead of presenting all his sensationalistic and unproven claims as facts he will need to clearly identify most of what he says as "allegations" and fill his presentations with lots of caveats - he might start by saying, "We believe …" instead of "HLF is …". What that means practically is that his massive anti-HLF P.R. campaign and his personal attacks on HLF are over. Gone are the "dramatic" revelations that are, in fact, allegations. There will be no more presentations with advance promises that they will be the "Death Blow". There will be no more saying with certainty that HLF is a "pyramid scheme" when not a single responsible Agency has ever even alleged that, let alone proved or decided it. There will be no more proclaiming he will keep his short position "… to the end of the earth" at or near the time he is actually reducing the risk in his HLF position.

All that is now over.

Wall Street and Financial media will always follow and report on all of Ackman's moves and activities. But Wall Street is interested primarily in what's new and different as well as information not already discounted by the market. And with Ackman muzzled by his lawyers, he is not going to have a lot of "new" information to present or new allegations to make.

Mainstream media will gradually forget Ackman, his anti-HLF allegations and his attacks. The mainstream media is interested in Wall Street only when there is something dramatic to report, and a muzzled Ackman will not be especially interesting.

And here's why the shutdown of Ackman's anti-HLF P.R. campaign is important: Without that campaign there will be no more media or public pressure on the Agencies to do Ackman's bidding. Also, there will be much less of a negative impact on HLF's business than there has been for the past 2-1/2 years. And the public might become more interested in buying the stock.

Ackman's "Markey Problem" and "Sanchez Problem" Have Made Him, his lobbyists and all other members of his Army persona non grata in Washington.

According to broadly published news reports, Ackman and his paid mercenary Army recruited a long list of local and Federal politicians to put pressure on the FTC and SEC to take action against HLF. Ackman himself was part of the recruitment program. The breadth and depth of the program was staggering. Ackman and his Army spoke to and recruited everyone from small city mayors to Members of the House of Representatives to Members of the U.S. Senate. As just a very few examples, Ackman recruited all of these people to help him:

· Senator Edward Markey (D, MA)

· Representative Linda Sanchez (D, CA and Chair of the Congressional Hispanic Caucus)

· Many members of the Congressional Hispanic Caucus staff

· Representative Loretta Sanchez (D, CA and Linda Sanchez' sister)

· Mayor Neil M. O'Leary, D, Waterbury, CT

Fortunately for anyone interested in the truth behind Ackman's anti-HLF activities, the investigative press has done a brilliant job. The New York Times, The Wall Street Journal and The Boston Globe, in particular, published series of investigative reports exposing the details of Ackman's previously secret activities. They exposed the depth and breadth of Ackman's Army. They exposed how Ackman and his Army used political connections and influence. They exposed how Ackman paid ethnic advocacy groups to make public anti-HLF statements and demands and search for victims. They exposed that Ackman paid a potential "whistleblower" for his testimony. They exposed collusion with politicians that resulted in their anti-HLF activities and, at least in one case, a suspicious campaign contribution.

There is special significance to the exposure of Ackman's influence on two politicians: Senator Edward Markey (D, MA) and Representative Linda Sanchez (D, CA) - Chair of the Congressional Hispanic Caucus (NYSE:CHC) - the CHC staff, and their collaboration with Representative Loretta Sanchez (D, MA), Linda Sanchez' sister.

The investigative reports exposed that Ackman and his Army enlisted Markey, Sanchez and Sanchez and they, in turn, colluded with him. Ackman did all of the work, including preparing all the materials for their letters, editing the final copies, providing alleged victims and directing all their anti-HLF activities. In the Markey case, Ackman made a suspicious campaign contribution to Markey's primary fund raising organization immediately after Markey was elected, then that organization, in turn, contributed somewhat more money directly to Markey's campaign.

Ackman's relationship with Markey, in particular, was so inappropriate that a political opponent has filed charges against him with the Senate Ethics Committee, and those charges are still pending.

There are multiple common denominators among Markey, Sanchez, Sanchez and the CHC. All their letters contained alleged "victim narratives" to support their anti-HLF demands. But, not a single one of the victims has been verified either before or after their political attacks.

Here are sources that exposed the details of Ackman's influence on Markey, Sanchez, Sanchez and the CHC:


Markey's website with copies of his letters. You can also use this website to search for any other subsequent reference to HLF; I can't find any.

The Boston Globe, March 15, 2014: "Markey may have exaggerated claims about Herbalife"

The Boston Globe, March 20, 2014: "Penchant for press releases ensnares Ed Markey"

The Boston Globe, March 15, 2014: "Don't let Markey hedge on Herbalife"

The New York Times' DealBook, March 10, 2014: "Ackman vs. Herbalife, a History"

The New York Times' DealBook, January 23, 2014:

I have written summaries of all those details and posted them on my SA blog, because the gory details are too long to be part of this article.

There is important investment significance of the exposure of Ackman's influence on Markey, Sanchez, Sanchez and the CHC. Now, every politician in Washington knows that if he/she helps Ackman in any way, the investigative press will pursue 100% of all the details and all of it will be exposed to sunlight. There is simply no political capital to be gained by supporting a billionaire Wall Streeter with a huge financial interest in your actions; how do you explain that to your constituents? This is especially true when neither Ackman nor anyone else has produced any verified victims.

Everyone should shed a tear for Global Strategies Group, one of the leaders of Ackman's Army. Their revenue stream from Ackman has probably slowed to a trickle and may have disappeared altogether. GSG now has very little work to do for Ackman, as there will be no more politicians to recruit to pressure any of the Agencies to do Ackman's bidding. Ackman and his Army are "Hot Potatoes". They have become persona non grata and they are dead in Washington and all other political venues.

Where Are All the REAL Victims?

Ackman bought an enormous nationwide effort to unearth alleged victims of HLF's alleged illegal activities. He hired Hispanic advocacy-groups to search for victims. He advertised in the Spanish press. He dispatched agents all over the country. He gave out "800" numbers as well as mailing and email addresses trying to make it easy for alleged victims to come forward. His Army wrote form letters for alleged victims to send to Agencies at all levels of government.

The result of his massive nationwide effort is that he claims to have identified over 1,000 victims and he has produced as many "victim narratives" - many obviously "form letters" and the like -- allegedly proving his case. And then he has propagated their alleged stories by producing written materials, slide shows and videos. He used his massive P.R. machine to propagate that material everywhere. His entire purpose was to try to discredit HLF in the public eye and, even more important, put pressure on the Agencies.

The problem is that not a single "victim narrative" has produced a single "verified victim". All of the stories are generic and/or allegations without proof, and not one has been put to the tests detailed at the beginning of this article to verify any of the narratives are real and/or show that HLF has engaged in any illegal activity.

And when some regulatory bodies investigated Ackman's allegations, they could not find real victims:

As reported above, CT A.G. Jepsen investigated all 26 letters from alleged victims, could not verify a single one of them, and dropped his investigation.

In Nevada, three Latino activist groups held a press conference, organized public anti-HLF demonstrations and sent letters to NV Attorney General Catherine Cortez Masto demanding she investigate HLF. It turned out that Ackman had hired the Ramirez group, a lobbying firm, to search for alleged Nevada victims and organize both the letter writing campaign, press conference and demonstrations. It also turned out Ackman made then-secret (but subsequently uncovered) payments to the Latino groups and all three of the letters from those groups were identical except three different Hispanic community leaders signed them, each on a different letterhead. When AG Masto invited the Hispanic leaders to meet with her individually, none of them could identify a single actual victim of abusive practices. Subsequently, she decided not to move forward with any investigation, telling the community leaders, "We are not going to move forward unless we have victims."

In Senator Markey's famous letter, he wrote, "For example, one family in Norton, MA reported that it lost $130,000, including their entire 401(NYSE:K)… Another MA resident claimed that she was encouraged to recruit new members by approaching her family… She also received pressure to spend money to buy more products… ". But, when The Boston Globe investigated, here's what if found:

· One alleged victim (a married couple) grossly exaggerated their losses, neither Ackman nor Markey's staff ever asked them for verification and the couple refused to verify even their reduced estimates of their losses.

· The other alleged victim bought a total of $300 of product from HLF.

In both cases, neither Ackman's agents, who gave the names to Markey - nor Markey's staff followed up to verify the alleged victims stories.

To date, Ackman has not produced a single verified victim.

Ackman Has Lost His Credibility with the Public. No One Believes His Anti-HLF Rhetoric Any More.

Ackman has made dozens of anti-HLF attacks, made threats, put pressure on Agencies and has been in the public eye continually for the past 2-1/2 years. His problem is that much of it has proved wrong, been retracted later, ignored by responsible parties or otherwise stopped being a "story" as soon as Ackman was done telling it.

Ackman promoted each of his allegations, so-called "exposures", demands, attacks, threats and everything else with an immense amount of publicity. The subsequent failures have, in aggregate, killed Ackman's credibility with the Agencies, the press and the public. Here is a sample list of Ackman's failures:

Belgian Court Case

Ackman's Allegations: A key part of his initial presentation in December 2012, Ackman claimed HLF was an illegal pyramid scheme in the U.S. because a 2011 decision in a Belgian court found HLF guilty of that claim in Belgium.

Reality: A subsequent decision by the Belgian court of appeals threw out the lower court decision and exonerated HLF point by point. Ackman responded by saying Belgian and EU law did not apply in the U.S.

1986 California Injunction

Ackman's Claim: Herbalife is in violation of the October 14, 1986 Permanent Injunction issued by the State of California against the Company that requires it to produce and make public a plethora of sales and other data Ackman claims would prove his anti-HLF case.

Reality: The plain meaning of the injunction is clear and does not require HLF to generate any specific data at all. The injunction only says that if HLF chooses to generate certain data it must share it with the court. And, despite what must have been intense lobbying by Ackman's Army, neither the CA court nor the plaintiffs from 29 years ago paid attention to Ackman.

PriceWaterhouseCoopers (NYSEARCA:PWC)

Ackman's Demands: Ackman wrote a 52-page letter to the heads of PwC, sending copies to multiple Agencies and arranging for broad public distribution. He demanded that the auditors produce reams of data that would help him make his case, and included a veiled threat of a lawsuit if they did not comply.

Result: PwC totally ignored his demands, PwC did the re-audit and gave HLF a clean bill of health, Ackman said afterward that answering his demands was not really PwC's job and neither he nor anyone else filed a lawsuit.

The Agencies

Ackman's Demands: From the beginning of his attacks, Ackman alleged that HLF's activities were so obviously and egregiously illegal and damaging to the public interest that he demanded the Agencies shut down the company immediately.

Agency Reaction: It has been 2-1/2 years since Ackman made his demands. Obviously, the Agencies did not shut down the company, they have yet to file any charges and there is a large array of possible Agency actions, including just letting the case die without any public comment.

"The Stock is Going to Zero"

Ackman's Claims: He said repeatedly that his research on HLF was the best he's ever done and he was certain the stock was going to zero.

Reality: The stock was in the high 30's when Ackman made his first presentation. It has had a roller coaster ride since then, but is now in the low 50's.

Allegations of Securities Fraud

Ackman's Claims: As the stock price was beginning to go against him and every hedge fund involved was lining up on the opposite side of the trade, Ackman claimed all the longs were violating securities laws.

The Reality: There has been no indication of any action by any of the regulators that alleges securities fraud. In fact, it is people related to Ackman's campaign who are being investigated for possible market manipulation.

Impugning the Capability of Other Hedge Funds on the Long Side of the Trade

Ackman's Pitch: From the NY Times Dealbook column immediately after the Robin Hood Conference: "(Ackman) … also lashed out at investors who held long positions in the company, describing them as being 80-year-old billionaires. Some of the company's biggest shareholders include Carl C. Icahn (who is 77), Mr. Stiritz (79) and George Soros (83)."

Reaction: So ridiculous no one paid any attention.

HLF Product Pricing

Ackman's Claim: Trying to position HLF's products as violators of a technical aspect of FTC rules, Ackman promoted the concept that HLF's products were "overpriced".

Reaction: Anyone who ever bought or compared a branded to a private-label product, or bought something in a brick and mortar store instead of online or who bought a cup of Starbucks coffee instead of coffee purchased anywhere else saw that as a ridiculous claim.

Hispanic Advocacy Groups

Ackman's Subterfuge: As Ackman continually pounded the media with claims that HLF was taking advantage of poor Hispanics, a series of Hispanic advocacy groups all over the country emerged providing alleged "victim narratives" and demanding Agency investigations.

Resolution: Investigative reporting exposed that Ackman had bought and paid for the advocacy groups' anti-HLF activities, the alleged "victims" wrote form letters provided by Ackman, none of the alleged "victims" has ever been verified, one communication emerged showing an advocacy group's negotiations for more money in return for stronger anti-HLF activities and many groups returned Ackman's money.

Alleged "Whistleblower"

Claim: Ackman claimed he found a former HLF senior executive "whistleblower" who would blow the lid off company.

Reality: Investigative reporting exposed that Ackman paid the alleged "Whistleblower" $80,000, with promises of much more, the individual was a middle management angry employee and his "smoking gun" was a report of one manufacturing problem at a single HLF plant.

Ackman's "Death Blow" to HLF

Promise: For weeks in advance of a scheduled July 23, 2014 presentation, Ackman promised he would deliver the "Death Blow" to HLF.

Result: 500 people attended the presentation in person and thousands more used the call-in facility. After Ackman made a three hour presentation with the usual slide show, Wall Street laughed it off, the stock gained 25.5% the next day and Ackman ended up apologizing in public.

Alleged "Victims"

Ackman's Claim: He has 1,000 victims

Reality: All his "victims" are alleged, none have been verified to be victims of any systematic illegal HLF activity and all third party attempts to verify alleged victims (New York Times, Boston Globe, Nevada AG, Connecticut AG) have not found any real victims.

I could go on. The investment point is that Ackman has totally lost his credibility. No one will pay much attention to any future claim and, with some of the Agencies watching everything he says and looking into everything he's said in the past, anything he says going forward will likely be tame by his prior standards.

Summary - Why I am Long

The reasons I am long are:

The bears' case is weak.

· The bear case is based nearly 100% on theory. It makes up data that they say should exist, but have no proof it does exist or, even if exists, that it would prove their theories. They demand HLF produce data to prove their case, while the data they demand has never been required to be produced by any large MLM company.

· They have no verified victims! Ackman and his Army have carried out an intense nationwide search for alleged "victims", enlisting dozens of Hispanic and other ethnic advocacy groups to help. The have directed and produced hundreds - maybe thousands - of letters to the Agencies demanding action. They have enlisted an uncountable number of politicians at all levels of the political spectrum, including a leading U.S. Senator and a powerful Congresswoman and her colleagues. They paid an alleged "whistleblower" to come forward. But here's the thing: They haven't produced a single - not one - verified victim. All they have is individuals who claim to be victims but have done absolutely nothing to verify their stories. Without verified victims, Ackman has no case.

· The bears are trying to fit a square peg in a round hole. They try to make the case that the Agencies should consider HLF in isolation. They are trying hard to show that HLF's activities are both against current law and uniquely related to HLF. That doesn't make any sense. Rather, it seems any Agency action will need to be industry-wide. That makes the Agencies' jobs more challenging and it will take longer.

· Even if some of Ackman's allegations are correct any related actions will almost certainly be minor and will result in new rule-making applying to all large MLM companies.

· I've been reading the bears' allegations for over 2-1/2 years now. My opinion is, that for the most part, the bears' allegations are presented as dramatic new revelations. In fact, what the bears allege are not dramatic revelations but well-known business practices and do not represent systematic illegal activity at the corporate level.

I believe there are future catalysts to make HLF stock go up.

· I believe Ackman's P.R. campaign will wind down and maybe come to a screeching halt. Without Ackman's intense and continual P.R. attack there will be reduced downside pressure on the stock - which of course means the stock goes up.

· Similarly, I believe Ackman is done in Washington and in political venues of all types, and that, too, will reduce the downside pressure on the stock and increase upside pressure.

· It is possible, and in my view likely, that the current criminal investigations around Ackman and Pershing Square's periphery will expand, and might even reach Ackman and/or Pershing Square directly. If that happens, it will cause a major uptick in HLF stock.

· I believe the stage is set for improvement in HLF's fundamental progress in the next few quarters.

· If HLF's fundamentals begin to improve, as I expect, the stock will, in fact, be cheap and can easily reach previous highs and go higher.

The nature of investing is uncertainty, So, readers should note that everything I write is caveated with the ending quote from any of Dennis Miller's famous Saturday Night Live rants: "…that's just my opinion. I could be wrong."

Disclosure: I am/we are long HLF.

Additional disclosure: This post is 100% my own work.