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Debacle Between Hedge Fund Titans on Herbalife Is Getting Ludicrous

November 23, 2013 | About:

Bill Ackman just appeared on Bloomberg TV on his short position of Herbalife. Head over here for the full interview. Also, take a vote on Ackman's short trade here.

Here are the 7 hallmarks of a pyramid scheme from the SEC (Ackman says it exhibits all 7):

1) Emphasis on recruiting.

2) Promises of high returns in short period.

3) Easy money or passive income.

4) Buy-in required.

5) Complex commission structure.

6) No genuine product or service.

7) No demonstrated sales revenue.

This Herbalife trade has been his most high profile trade/investment to date. Ackman is on the short side (he has changed the structure of his trade from shorting stock to buying put options with a target of 0, and if the company were to be taken private he will restructure his trade to CDS).

On the other side of his short trade are the legendary hedge fund titans: Carl Icahn, George Soros (who used to have money managed by Ackman but has yanked it out), Stanley Druckenmiller, William Stiritz, Kyle Bass and Dan Loeb (who profited on the position).


Let's look at Ackman's previous high profile short, MBIA, which worked out well for him after years of being under scrutiny.


And the scary double top forming for Herbalife:


Regardless of the high profile trade, let's remember that both sides may win. The long side may be in for a trade but Ackman opined Herbalife faces challenges in going private via leveraged buyout because one of the prerequisites is to submit audited accounts which they have yet to do. So, in effect, the long "investors" may help Ackman after all in raising the profile of Herbalife. In order for the Herbalife short trade to work, it requires regulatory hands to interfere. But one should wonders what Ackman has done to rile up octogenarians' interest in Herbalife. It will be interesting to watch how this trade/investment pans out.

About the author:

Agnostic trader. CAIA and CHP charterholder. Twitter: @hedgefundtrades

Visit Hedgie's Website

Rating: 3.2/5 (5 votes)


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GuruFocus has detected 3 Warning Signs with Herbalife Ltd $HLF.
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