Friday, February 7, 2014

But You Say He's Just a Friend (by BigBiz Markey)

Let's follow the money for a brief interlude.

A lobbyist by the name of Mickey Leibner files a lobbying disclosure report on January 8th, 2014. In that report he discloses $36,000 in lobbying related income received from Pershing Square by his firm the Moffett Group. On that same day Herbalife shares had hit their 52 week high at $83.51 and Pershing was feeling an estimated $900M pinch in their collective wallet. 

The following day on January 9th, Herbalife options explode with the three month record high put volume reached. Notably 25,000 January 2015 50X puts were purchased in a single trade that day. The following day on January 10th, an additional 20,759 January 2015 50X puts were also purchased. It is also of interest to point out that January 2015 is the same expiration that Ackman had chosen in his prior short restructuring efforts in September.

A week or so later on January 17th Mickey Ibarra files $30,000 in lobbying related income received from Pershing Square by his firm Ibarra Strategy Group. The disclosure notes the lobbying activity was for Issues relating to enforcement of consumer protection laws and securities regulations relating to pyramid schemes and that the agencies lobbied were the 

Then a few days later on January 21st George Rogers files $60,000 in lobbying related income received from Pershing Square by his firm Wexler & Walker Public Policy AssociatesThe disclosure notes the lobbying activity was for Issues relating to enforcement of consumer protection laws and securities regulations relating to pyramid schemes and that the agencies lobbied were the U.S. HOUSE OF REPRESENTATIVES, the U.S. SENATE, the Federal Trade Commission (FTC), and the Securities & Exchange Commission (SEC).

Up to this point Pershing Square had spent $264,000 lobbying through these three firms specifically for "Issues relating to enforcement of consumer protection laws and securities regulations relating to pyramid schemes" and nothing else. 

It is probably just coincidence that all these filings occurred within two weeks of Senator Markey's letters. I can only imagine how intensely he grilled his staff about the amount of due diligence they had done on Herbalife and Pershing Square's short position in the company. It is probably also just a coincidence that after all of these January happenings, that Ackman recently disclosed at the beginning of February that Pershing's Herbalife short had GROWN to $1.16B. By my math, he only could have grown it had he added to his position(by buying options in January for instance).

Who knows why precisely Ackman chose the lobbyists he and Pershing Square did, but there are so many interesting connections, James Burke would have a field dayI can see his opening statement now, "If it weren't for the Kenyan Intelligence agency, Herbalife Formula 1 wouldn't be the world's number one diet shake." 

Anyhow, you don't have to look too terribly hard before you see the connections between Markey's office and Moffett nor why Markey's staff would be willing to go to bat for Moffett and get Pershing's anti-Herbalife letters signed. 

Granted, Massachusetts' politicians have left an indelible mark on Washington that is as broad as the coconut oil streaks deposited by John Boehner's leathery cheeks at his local American Suntanning Association salon, so it's not really a stretch to see how the staff of a Massachusetts senator that has known Toby Moffett for three decades could be induced to issue those letters or perhaps that Moffet and their client Pershing Square could have early access to those letters. Toby Moffett and Ed Markey developed their 30+ year relationship after having served in the House of Representatives together. In addition to Moffett's own relationship with Markey over the years, Moffett's principal lobbyist on Pershing Square's account developed an admirable track record as a political activist in Massachusetts as well. Before becoming a lobbyist, he worked for Ted Kennedy's judiciary committee office and then worked at MassEquity in an effort to maintain the rights of same-sex couples. Years before, he even hosted then Representative Markey and staff at a political rally in Boston against the Iraq war.

I emailed Mickey Leibner at Moffett Group and directly asked whether or not any Moffett staff met with Senator Markey, or his staff members about Herbalife, and/or Pershing Square's investment in it, but he did not respond.

You can chalk this up to a conspiracy theory, but I don't mean to infer that at all. We shouldn't be surprised that relationships hold sway in business or political environs. Hell, most of my business associates I trust because of my long term relationships with them. More than anything though, it's a sad commentary on how business and politics work together when merit and value aren't the key metrics and the currency of influence takes precedence. It is also a sad commentary that Markey's staff would be willing to move forward with their actions based on relationship alone after having done so little due diligence or that they simply didn't attempt to initiate a dialogue with Herbalife first. Trust but verify as it were. I'm sure Herbalife would have been happy to host Senator Markey and his staff for some basic due diligence.

And speaking of due diligence, anyone want to know what a pyramid does not look like? Below are a couple of pictures showing Herbalife's vast distribution facility on the outskirts of Los Angeles. This former DHL facility operates six days a week and has approximately 200 employees. It handles a huge quantity of distributors' and members' orders for the United States and supports local distributors as well. Aside from the amazing scale of this highly automated, national distribution facility, business for local orders is so robust, the company added touchscreen kiosks so that local distributors can place their orders and pick them up within 15 minutes.

Although the short side would like the public to believe that Herbalife is an evil pyramid, that makes their money by recruiting the poor and huddled masses, it is easily observed both within the company's audited financials and within the the distribution facility itself that the overwhelming majority of Herbalife's business is comprised of repeat sales and consumption of core products such as Formula 1. Speaking of, did you ever wonder what about a week's worth of Formula 1 containers looks like? Wonder no more.

If you're on the short side, just stop for a second and ignore all of Ackman's hand waving and powerpoint animations and just look at the perspective that one single distribution center gives as an example. To my eye it looks a lot more like the thriving, strong base of a rapidly growing international business than it does the pointy top of a pyramid. I'm sure regulators and other members of Congress recognize that you couldn't build a distribution center like this on the back of an illegal scheme anymore than you could tear it down with Pershing's flawed research or paid political influence.


  1. Interesting post. I am curious where you got the photos.

  2. Awesome article man. Love the picture of Formula 1. I have a nutrition club in Maryland and the business is thriving. I had 170 consumptions at my club today and sold a total of $1,700 worth of Herbalife products. I am open 6 days a week from 7 am - 6 pm and my club is bustling with activity. A lot of people stop in for breakfast and lunch and we get a lot of people coming or going to the gym. They love the Herbalife 24 Recovery Shakes. We love helping people get fit and healthy. Herbalife is a great company. It is a financial lifeline for a lot of Americans as well as the rest of the world. Herbalife operates in over 90 countries. That's a lot of governments that say Herbalife is legit. Just Sayin...

  3. Moving products is no proof of Herbalife being legal.