Tuesday, October 8, 2013

Pershing Square Modifies Herbalife Disclaimer

Based on their public appearances, letters to PwC and letters to Pershing Square investors, it would appear that Ackman et al have done a lot of work and put together a large body of information. They hired lawyers, accountants, and consultants. They spent a lot of time and utilized a lot of resources to put together a massive, well narrated story about Herbalife to support a massive short position. They even hired Semper Fi Webdesign to build out FactsAboutHerbalife, an anti-Herbalife site supported by Pershing Square. After all this work and after announcing his position on CNBC, Ackman then took the stage at Sohn and dazzled the audience with his confidence, conviction and mounds of research. Ackman admits to being "a little to cute" in prior investor letters, but I think Ackman may have out-cuted himself by continuously reiterating a false statement while he was partially restructuring his Herbalife short position as noted in his most recent investor letter. Maybe Ackman's Genius really will be his downfall.

Anyone paying attention to the Herbalife imbroglio knows that the Pershing Square website they host to discredit Herbalife has a disclaimer posted on the home page. New visitors will notice its the first thing that pops up when you visit the website. Its full of the usual legalese to disclaim any potential liability. Careful readers of the website will note that it has significantly changed recently.
Where it used to read:
"Pershing Square currently maintains a substantial short position in the common stock of Herbalife Ltd. (“Herbalife"). This position does not include any options or puts.
Pershing Square will profit if the trading price declines for common shares of Herbalife and will lose money if the trading price increases for common shares of Herbalife." (underline added for emphasis by your's truly)

it now reads:
"Pershing Square currently maintains a substantial short position in the common stock of Herbalife Ltd. (“Herbalife”). Pershing Square will profit if the trading price declines for common shares of Herbalife and will lose money if the trading price increases for common shares of Herbalife." 

You see, there is no real issue with the modification itself as I see it. The big problem with that modification is that it was made well after, Pershing Square modified it's short position and in fact went out into the market and bought options. All the while they did this, their disclaimer clearly stated otherwise.

See for yourself by checking their disclaimer.

And considering that he made these modifications after he restructured his position, I can't help but wonder if Bill Ackman and Pershing Square have some explaining to do. I can't imagine that Ackman's insider trading allegations to the SEC against other fund managers buying into Herbalife could be received in a flattering light, given his blatant disregard for his own disclosures. If he was audacious enough to ignore his own public statements, why would he change that statement now? Regardless of how you feel about how and when Ackman went about disclosing his short position, it would be hard to argue that publicly hosting a website that specifically states you do not own the securities you own is somehow defensible. I'm not a securities lawyer, so I have to wonder whether or not this behavior is even legal. Given Mary Jo White's recent promises to hold individuals accountable, I can't help but wonder if some sort of ominous reckoning isn't coming for Bill Ackman and Pershing Square regardless of just how awesome MJW really is.

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