Ackman vs. Icahn: The Herbalife Battle That Shook Wall Street

[00:00:15] Welcome to today's episode, Ackman vs. Icahn, The Herbalife Battle That Shook Wall Street.

[00:00:22] Now, in fairness, Shook might be too strong of a word, but it definitely gripped Wall Street and the business media as billionaire hedge funders Bill Ackman and Carl Icahn publicly feuded when Ackman took a short position on Herbalife and Icahn took the other side of the base.

[00:00:38] You see, there was prior beef between these two billionaires. So in this episode, we look at the history behind that.

[00:00:46] We look at Herbalife and the whole MLM or multi-level marketing business model.

[00:00:51] And we dig into why Bill Ackman is so polarizing and how it is probably his personality more than anything else that trips him up and is likely to do so again in the future.

[00:01:03] It's a cracking story. And as always, there's a link underneath the podcast that brings you to an article on this episode.

[00:01:10] And at the start of that article are links to our main sources and some of the videos of Ackman, Icahn, The Herbalife CEO.

[00:01:19] They're well worth watching. So enjoy.

[00:01:22] And just before you jump into the episode today, I want to apologize for the sound, for the sound over the last 12 months and for the sound today.

[00:01:29] It's a bit patchy. We're not sound engineers and we're recording remotely, both of us.

[00:01:36] So we will get it right at some stage. We're working on it.

[00:01:40] So appreciate your patience and enjoy the show.

[00:01:44] Good morning, Keith.

[00:01:45] Good morning, Simon. How are you?

[00:01:46] Not too bad. Not too bad.

[00:01:48] Good.

[00:01:48] Good.

[00:01:48] And today our story is, it's the story about Herbalife, about the short bit that was taken on Herbalife by Bill Ackman and Carl Icahn and about the big public feuds they got into as a result of this.

[00:02:03] It's a great story.

[00:02:04] Yeah, it's a great story.

[00:02:06] Full of likeable characters, you know, that's a great thing about it.

[00:02:09] There isn't. Okay. Actually, Icahn I like.

[00:02:12] So do I actually.

[00:02:13] Icahn. I like Icahn. I mean, he's a rootless, tough New Yorker. You wouldn't want to get in his way. But out of the characters that are in this, he is definitely head and shoulders in terms of likeability above the rest of them.

[00:02:27] Yeah. Yeah. Well, yeah. I'll moderate my, my views maybe a little bit, but I think there's, there's not much comparison really. I like Icahn as well. He's a very likely character.

[00:02:42] Yeah. Yeah. I do. I think in terms of even the interviews, there's a charm there. You know, he, he's unapologetically tough.

[00:02:53] Um, Ackman, maybe not so much. Uh, but anyway, yeah. So, so, so maybe just to sort of go through it a little bit, what drew you to the story? What was, what was the inspiration behind choosing it and what attracted you to it?

[00:03:11] The, the trigger was Ackman, of course, is becoming so high profile these days. He's on Twitter all the time. He's got a huge following and he's obviously loving, um, all the adulation and the press that he's getting. And so he popped up over something or other. It could have been the whole Palestine Israeli issue. I don't know.

[00:03:33] And that just got me thinking about, uh, the documentary I saw betting on zero, uh, on Netflix, which is, uh, covers the whole herbal life short that he does. And I just said, yeah, okay, this is a great story. I knew Carl Icahn, uh, was involved in it, although he doesn't show, he doesn't, uh, appear much in betting and betting on zero. And I thought, okay, well, we're not going to get too much into Carl Icahn here because we, he definitely deserves an episode or even a two parter on his own. He's brilliant.

[00:04:02] He's brilliant. So that's what got me into it. And then in terms of sources, there was the documentary. I rewatched that betting on zero. Uh, I read the book, Scott Wapner, uh, it's called when we'll, when the wolves bite.

[00:04:16] Very good book. Nice short, but really, really interesting. And then there was two fantastic articles. Uh, William D. Cohn, who always writes great articles in vanity fair. He had a huge article called the big shorts that really goes into the character of Bill Ackman.

[00:04:30] And then Roger Parloff in fortune had a huge article as well on the siege of herbal life. So great detail in there as well. So it is just a fantastic story. And I suppose, look, in this story, we really will be digging into Ackman's character because as always, whenever Ackman's involved, he's always the star of the show, you know, and I just want to preface it by saying, yeah, we're going to give him a kicking, but he's not Putin. He's not Hitler. You know, he, he, he's not evil.

[00:05:00] But he just puts himself up on such a pedestal of self-righteousness and morality that when you scratch the surface, you can just see the hypocrisy behind it all that he really sets himself up for in our school, as they'd say, he's looking for a bait.

[00:05:16] You know, he really is. So I suppose we'll get into it. But before we do, there are some quotes that I want to just give our listeners to give them, to give an idea.

[00:05:28] These are people who know Ackman and who had dealt with Ackman and they come from the William D. Cohn article in vanity fair.

[00:05:34] So the first quote says that there's a saying in this business, often wrong, never in doubt. Ackman personifies this. He is very smart, but he lets you know it.

[00:05:46] And he combines that with this sort of noblesse oblige that sort of, that lots of people find offensive.

[00:05:53] And on top of that, he's pointlessly, needlessly competitive every time he opens his mouth.

[00:05:59] Now, I know some of our listeners are a lot more educated than me and they'll know what noblesse oblige stands for, but I didn't.

[00:06:05] So I had to look it up. And it's a French expression that means that nobility extends beyond mere entitlement, requiring people who hold such status to fulfill social responsibilities.

[00:06:18] And Ackman does give out that feeling that he's doing this for the moral good, you know, isn't that the feeling you get from him?

[00:06:27] Yeah, certainly he tries to portray quite an obviously mercenary endeavor to short Herbalife and Influencer share price as the greater good and saving, you know, less privileged investors than he.

[00:06:44] But it's quite clear that's not what he's at at all.

[00:06:48] It's very clear that that's not what he's at. He's an out and out investor and he tries to dress it up as a moral crusade.

[00:06:55] And there's a quote I have from him here, which really just personifies what he's like and what he thinks of himself, really.

[00:07:02] He says, I am a change the world guy. I don't like investments that are not good for America.

[00:07:09] And you're kind of going, Bill, you're a money man. You're not a change the world.

[00:07:15] No.

[00:07:15] You don't create anything, you know, except wealth.

[00:07:19] Yeah. And he was in, he did a lot of property investments. I mean, with no disrespect to property investment, but how does it change the world?

[00:07:27] I know. He made his money on the likes of McDonald's, Chipotle, Alphabet, like, OK, you know, investments, but not change the world kind of stuff.

[00:07:37] Oh, my God.

[00:07:38] So he's humble.

[00:07:41] Oh, humble is not what Bill Ackman is at all, because this quote, and then we'll get on to the story of, you know, how this all started.

[00:07:49] But this is a great quote, again, from the William D. Cohn article.

[00:07:52] And if anybody has seen Bill Ackman in action, they'll understand the description here, especially the puckering his nose bit.

[00:08:00] So this is it. He's just pompous and arrogant and seems to have been born without that gene that perceives and measures risk.

[00:08:08] He seems to look at other members of society, even legends such as Carl Icahn, as some kind of subspecies.

[00:08:15] The disgusted, annoyed look on his face when confronted by the masses beneath him is like one you'd expect to see from someone confronted by a homeless person who hadn't showered in weeks.

[00:08:24] You can almost see him puckering his nostrils so he doesn't have to smell these inferior creatures.

[00:08:30] Oh, my God.

[00:08:34] So that's from one of his former friends.

[00:08:36] And this is a theme that runs throughout the story and actually adds to the story and adds to Ackman's woes as the story goes on,

[00:08:42] is that he seems to fall out with friends an awful lot because of this attitude that he has.

[00:08:50] That's a fantastic quote, actually.

[00:08:52] It is.

[00:08:53] It's vivid.

[00:08:54] It is.

[00:08:55] It is.

[00:08:56] You can, because when you see him in action, you can see actually him nearly puckering his nose when he has to deal with people beneath him.

[00:09:01] So let's, let's get into the story.

[00:09:03] So Ackman himself, he comes from a wealthy family.

[00:09:08] They're involved in real estate and he was very much influenced by Warren Buffett.

[00:09:13] And he kind of tried to model himself on Buffett.

[00:09:17] But he's no Buffett.

[00:09:18] No, no.

[00:09:19] No, I mean, humility, you know, everything from the legendary sort of the car Buffett drives to, you know, a bottle of Coke.

[00:09:28] Right.

[00:09:28] I mean, he's a Coke investor.

[00:09:30] But still, you have an image in your head of somebody who spends their time playing bridge.

[00:09:35] Yeah.

[00:09:36] Yeah.

[00:09:36] Yeah.

[00:09:37] You know, so he's inspired by a two degree, I suppose.

[00:09:40] Inspired by his success, maybe.

[00:09:43] Yeah.

[00:09:43] But his ego and vanity just keep getting in the way.

[00:09:45] It's interesting you should mention that Buffett is a big investor in Coke and drinks a Coke every day.

[00:09:49] Because Ackman famously came out and said that he wouldn't invest.

[00:09:54] He never invests in Coke because Coke is bad for you.

[00:09:58] Now, this is despite the fact that he's made a lot of his money off McDonald's, Wendy's, Chipotle, fast food places that not only sell food that's not very good for you.

[00:10:06] But that also sell Coke.

[00:10:08] Yes, I know.

[00:10:10] Like his hypocrisy.

[00:10:12] But anyway, so at the age of 26, he gets involved.

[00:10:16] He starts up a company called Gotham Partners with a friend of his from college called David Berkovitz.

[00:10:21] Not the son of Sam.

[00:10:22] This is a different David Berkovitz.

[00:10:24] And there is three million from friends and family.

[00:10:27] And they do well.

[00:10:29] Within 10 years, the fund has $300 million in assets.

[00:10:33] But then they get involved in a golf company, an investment.

[00:10:37] And it turns bad.

[00:10:39] And instead of bailing out, they double down.

[00:10:42] And it leads to them having to unwind the partnership.

[00:10:45] And two vital things come out of this unwinding.

[00:10:48] So these two things are very important to the whole story.

[00:10:51] The first one is that he has shares in a company called Hallwood Realty.

[00:10:56] And he bought them for $60.

[00:10:58] But he knows they're worth a lot more.

[00:11:00] And so does Carl Icahn.

[00:11:02] And so while we're not going to really get into Carl Icahn in this episode, just to give our listeners a very quick overview of him.

[00:11:10] He's this legendary, ruthless, corporate raider and investor who made his name back in the 70s for taking large positions in companies.

[00:11:19] And sometimes he bought the companies like TWA.

[00:11:22] But an awful lot of times, the companies would just pay him a premium just to get rid of him.

[00:11:26] So he got a name as what was called a green mailer.

[00:11:29] Now he lost that tag.

[00:11:30] And by the time we get to this story in the early 2000s, he had set up a hedge fund making really good returns.

[00:11:37] So he's very, very well known.

[00:11:40] You wouldn't mess with him.

[00:11:43] And we will definitely do an episode on him.

[00:11:45] But getting back to Ackman.

[00:11:47] So he approaches Carl Icahn and says, look, I got to get rid of these.

[00:11:51] I'm unwinding my positions.

[00:11:52] Can we do a deal?

[00:11:53] So they do a deal where Icahn agrees to buy them off Ackman for $80 a pop.

[00:12:00] But he also builds in this thing called a schmuck insurance.

[00:12:03] I love the name schmuck.

[00:12:04] It's typical Carl Icahn.

[00:12:05] And this is whereby to ensure that Ackman doesn't look like a schmuck if Ackman offloads the shares within three years and makes a profit from it.

[00:12:16] Anything outside of 10% profit that Ackman makes himself and Ackman will split those profits so that Ackman, as I said, doesn't look like a schmuck.

[00:12:25] And what happens is that a year after Ackman buys those shares, Halwood Realty is merged with another company.

[00:12:32] Ackman gets $137 per share.

[00:12:35] Ackman waits for his call from Ackman to say, here's your 4.5 million profit.

[00:12:40] But Ackman doesn't bring him because Ackman says, no, no, I didn't sell those shares.

[00:12:45] The company merged.

[00:12:47] So technically, I didn't sell them.

[00:12:49] So I'm not going to pay you.

[00:12:50] Now, by all accounts, apparently, Ackman had a pretty watertight contract and he sues Ackman.

[00:12:57] And this goes on for about seven or eight years until they eventually settle in 2009.

[00:13:02] And Ackman has to pay Ackman 9 million, 4.5 million for the profits and 4.5 million in penalties.

[00:13:10] This is nothing from Ackman.

[00:13:12] By this stage, Ackman is worth like 14 billion.

[00:13:14] But it's the principle of it.

[00:13:16] It's the principle for two reasons.

[00:13:18] First of all, Ackman swears that they had a verbal agreement.

[00:13:22] He maintains full on that they had a verbal agreement.

[00:13:24] Now, I'm not too sure about that because if they had a verbal agreement, how come Ackman had this watertight contract that the court looked at and said, yeah, he's got you banged to rights, Ackman.

[00:13:33] But I think what really pissed Ackman off was that after Ackman won that court case in 2009, he went to the press and the New York Times did a really nice puff piece on him, you know, saying how Ackman got won over on Ackman.

[00:13:50] And for Ackman, that really violates a code on Wall Street in that you never rub it in the other guy's face, no matter how gratifying the win is.

[00:14:01] But this is Ackman.

[00:14:02] It's not enough that he wins.

[00:14:04] He needs everybody to know how right he is.

[00:14:07] And that is, I think, what really infuriates Ackman.

[00:14:11] So there you have the basis of this feud and one of many of Ackman's former friends and investors who waits in the long grass for him.

[00:14:23] So that's one thing that comes out of the winding down of Gotham.

[00:14:26] The other thing that comes down from the winding down of Gotham Partners is that he started shorting just before they wound down into this company called MBIE,

[00:14:36] which was a huge bond insurer, and he believed that it was over leveraged.

[00:14:40] So he does a very, now, he does a very public short on this for many years.

[00:14:44] Ackman isn't always a short seller.

[00:14:46] More often than not, he's an activist investor, but he does shorts at MBIE.

[00:14:51] Holds onto them for five years.

[00:14:53] Like, this is tenacious stuff, in fairness.

[00:14:55] You've got to give him that.

[00:14:57] And eventually he was proven right.

[00:14:59] And MBIE eventually crashed in 2007.

[00:15:02] And Ackman made a billion for his investors out of that.

[00:15:07] And as one of the reports said,

[00:15:10] thus was born Mr. Ackman's near fanatical belief that he can see and fix what even those closest to the situation are blind to.

[00:15:18] And it also cemented his reputation.

[00:15:20] Like, this made him, put him in headlines.

[00:15:23] And by this stage as well, he had started a new fund in 2004 called Pershing Square.

[00:15:28] Pershing Square had some big wins with McDonald's and Wendy's.

[00:15:31] In 2007, it had five billion in assets.

[00:15:34] And his MO was really to go big or go home.

[00:15:38] He took big, big risks.

[00:15:40] Yeah, he did.

[00:15:40] He really, he doesn't go in small.

[00:15:42] He goes in big.

[00:15:44] And that can lead to big wins.

[00:15:45] And that's why he was really doing well at this stage.

[00:15:48] But also big losses.

[00:15:50] He lost big in Target.

[00:15:51] He lost big in Borders.

[00:15:53] He lost very big and very publicly in JCPenney.

[00:15:56] And the Target one I mentioned specifically, it's important.

[00:16:00] Because he got an awful lot of his hedge fund buddies to go into a Target with him.

[00:16:05] And they ended up losing 1.5 billion.

[00:16:08] And my research showed that it wasn't losing the money that pissed off his fellow hedge funders.

[00:16:15] It was his attitude.

[00:16:16] He didn't really take responsibility for that loss.

[00:16:20] Kind of maintaining that, you know, it wasn't his fault.

[00:16:23] And that really pissed him off.

[00:16:24] And he doesn't make good then with other investments.

[00:16:27] And do these guys invest in the entire portfolio?

[00:16:31] Because overall, what you see kind of is a pattern of, okay, there's big losses.

[00:16:36] There's wins.

[00:16:37] But by and large, the portfolio or the total fund tends to come out pretty good.

[00:16:42] Yeah, I think we will be doing an episode, even though most of this episode is on Ackman.

[00:16:48] I think we will eventually, when Ackman retires, we'll do an episode on him.

[00:16:53] But I don't think his story is finished quite yet.

[00:16:56] I think there's going to be more ups and downs.

[00:16:57] But in the target fund, no.

[00:17:00] I think most investors do invest in the whole fund.

[00:17:02] But for the target fund, this was, I gather, a separate investment.

[00:17:07] Because all I heard was my research shows that a lot of his buddies lost out big time on the target fund.

[00:17:14] So it seems like it was separate.

[00:17:16] Because overall, Pershing Square is doing really well.

[00:17:19] Like by 2011, it's got 19 billion in assets.

[00:17:23] And it's been growing at a steady rate of nearly net returns of 21% since 2004.

[00:17:29] So things are going well.

[00:17:31] And I mention up to 2011 because 2011 is then when Herbalife enters the story.

[00:17:39] And we're not really going to go into MLMs here.

[00:17:43] But, I mean, Herbalife is an MLM, a multi-level marketing.

[00:17:50] That's the business model.

[00:17:51] Did you ever in your early days get involved in any of those?

[00:17:55] No, because they just stink to high heaven.

[00:17:58] We did.

[00:17:59] I did when I was in school, actually.

[00:18:02] We got involved in Amway.

[00:18:05] Did you?

[00:18:05] Yeah.

[00:18:06] What do you mean we?

[00:18:07] The class did?

[00:18:09] No, a few of us.

[00:18:10] No way?

[00:18:11] Yeah, a few of us.

[00:18:12] How did that work out for you?

[00:18:16] I had a lot of cleaning products left over, which I didn't really need as maybe a teenager.

[00:18:24] But I think, you know, on balance, I think it was quite interesting because I had an educational program.

[00:18:30] They had some really interesting motivational speakers who came over.

[00:18:33] So in terms of sort of developing some interest in business and personal development, it was kind of interesting.

[00:18:41] I had to pay for all of the educational pieces.

[00:18:44] And that was part of sort of the reputational management then too.

[00:18:48] But yeah, on balance, lost money, but not a negative experience.

[00:18:56] And I had a quite broad range of very effective products.

[00:19:02] So yeah, I mean.

[00:19:05] But I have a very negative view of MLMs.

[00:19:13] To give our listeners some background, and we're not really going to go into MLMs, but I would recommend there's a podcast called The Dream.

[00:19:21] And season one of it does a really deep dive.

[00:19:24] I didn't get into season two, but season one is a really deep dive on MLMs.

[00:19:28] And it gives a really good overview, deep dive into what they're all about.

[00:19:33] So I'd recommend listening to that if you want to find out more.

[00:19:35] But an awful lot of MLMs are accused of being pyramid schemes.

[00:19:40] Now, the FTC don't have a definition of a pyramid scheme, but the best one I found was as follows.

[00:19:45] An organization is deemed to be a pyramid scheme.

[00:19:49] If the participants obtain their monetary benefits primarily from the recruitment rather than the sale of goods and services to customers.

[00:19:57] So in other words, if you make your money from recruiting more people to the network, and that's how you make your money rather than selling goods, then that's a pyramid scheme.

[00:20:05] Now, Herbalife pays distributors based on the products the distributors orders, not on what they sell.

[00:20:14] And on the products ordered by the distributors, three levels of recruits.

[00:20:18] So in other words, the distributors direct recruits, the recruits recruits, and the recruits recruits recruits, which is called the down stream or down line.

[00:20:26] The down line, exactly.

[00:20:29] And while it's true that no distributor is paid exclusively for recruiting, because if they did, they'd be called a pyramid scheme.

[00:20:35] It's also true that no distributor would ever earn revenue without recruiting.

[00:20:41] Yes.

[00:20:41] And you mentioned Amway there.

[00:20:43] Amway kind of set the benchmark because when the FTC took Amway to court in 1979, the upside of that or the sort of benchmark they laid was that 70% of sales have to come from outside the network.

[00:20:56] Yeah.

[00:20:57] Which seems kind of clear, but it's not clear.

[00:21:00] Nothing with the MLMs and with Herbalife are clear.

[00:21:02] Because they deliberately complicate their business models and distributor agreements to kind of obscure unfavorable practices.

[00:21:10] And an example is Herbalife.

[00:21:12] Back then, when we were looking at this story, 2011, 2012, the agreement they have with their distributors, Keith, runs to 124 pages.

[00:21:21] Oh, God.

[00:21:22] Now, this is from a distributor who might be buying, say, about $3,000 worth of goods.

[00:21:27] Why would you need a 124-page agreement to buy $3,000 worth of goods?

[00:21:34] But what it does allow them to do, it allows them to sow an awful lot of confusion.

[00:21:39] They're able to say that, oh, we offer all our distributors full refunds.

[00:21:43] And yes, only 0.35% of our distributors actually look for a refund.

[00:21:49] So aren't we great?

[00:21:50] But the fact is that when you look into the fine print of this 124-page agreement, the buyback process is deliberately convoluted with lots of hidden costs.

[00:22:00] And it discourages any buyback.

[00:22:02] My take on MLMs is I think they're just shady as hell.

[00:22:06] And I don't trust them at all.

[00:22:08] I think if your product is good enough, which they all claim, Herbalife says our shake is the best.

[00:22:14] And for our listeners, Herbalife sells...

[00:22:16] Yes, weight loss shakes.

[00:22:18] Weight loss shakes and other products.

[00:22:20] And if they claim that their shake is the best and that's why they can charge a premium from it first, why not sell it on the market then?

[00:22:27] Why not sell it in this convoluted way?

[00:22:30] It's not right.

[00:22:32] So as somebody who's trying to recruit people kind of 30 years ago, the story was that the money for marketing and distributing and profit sharing with a retailer

[00:22:46] was plowed back into product development.

[00:22:49] Yeah.

[00:22:50] And, you know, I think with the benefit of hindsight, you know, you can look back, but there was an appeal to it.

[00:22:59] There was sort of a...

[00:23:00] There was...

[00:23:01] You felt like you were surrounded by successful people.

[00:23:04] And in fairness, some of the people who would have got into an organization, either at a country level or an early foundation level,

[00:23:11] were obviously successful.

[00:23:14] So...

[00:23:15] But isn't that typical of a pyramid scheme?

[00:23:17] Yeah.

[00:23:17] Yeah.

[00:23:17] Yeah.

[00:23:19] Yeah.

[00:23:36] Exactly.

[00:23:44] And he's been a good guy.

[00:23:44] His wife said he could sell snow to the Eskimos and he starts by selling weight loss products out of the back of the car,

[00:23:50] this Formula One, a meal replacement shake.

[00:23:52] And within five years, he's built it up to revenues of $300 million.

[00:23:56] So he's doing really, really well.

[00:24:01] Now, he keeps growing it up until about the year 2000.

[00:24:05] It has revenues of $1.7 billion.

[00:24:07] but then he dies after a four-day binge on wine and prescription drugs and after he dies then it

[00:24:15] goes into a bit of a tailspin and it goes to a few different ceos but then two vcs bias in 2002

[00:24:23] for 350 million and then they bring in this new ceo a guy called michael johnson have you seen

[00:24:29] michael johnson yes yeah fascinating character actually uh he he seemed to reluctantly join

[00:24:38] they really have to sell the business to him he's an ex disney guy right well yeah i mean he he was

[00:24:44] very very high up at disney and he would have been he would have been in position for the top job

[00:24:51] because he was a head of their international operations division except for the fact that

[00:24:55] bob eiger was also yeah and bob eiger had been you know penciled in as the heir to uh i think it was

[00:25:01] michael eisner yeah and so nobody else is going to get that top job yeah he still hasn't gone anywhere

[00:25:06] he said he's back again we're going to do something on disney a few episodes oh yeah fantastic brilliant

[00:25:14] stories in there so yeah he knows he's not going to get the top job but still herbalife back then

[00:25:20] was you know a dodgy dodgy company but they approached him anyway the vcs and uh you'd wonder

[00:25:27] how they managed to convince how they managed to convince him but i'm guessing it was all those uh

[00:25:32] dollar bills because he ended up getting a slice of the business and over the course of his career

[00:25:37] with herbalife he earned over 275 million dollars i'd say that might have something to do with although

[00:25:41] he did say sort of the product resonated with his healthy lifestyle because he was a competitive

[00:25:47] cyclist or something like that wasn't he he very competitive strike cyclist and he has these he has

[00:25:53] this close crop tear and these pointy ears and as one of the articles said he's a cross between

[00:25:57] lance armstrong and mr spock and uh full of compliments then

[00:26:04] but he's uh he now in fairness to him in fairness to him he did a great job yeah he uh he made herbalife

[00:26:13] a more professional organization he uh built it up from revenues of 1.4 billion up to 11 up to 4 billion

[00:26:20] in 2011 he uh the shares rose by 870 between 2008 and 2011 but in my mind like what he did was he

[00:26:30] he put really nice lipstick on a pig because i still think herbalife it still stinks but he got it looking

[00:26:37] a little bit better a little bit more professional um so that's where we're at with um herbalife come

[00:26:46] 2011 and how herbalife gets onto the radar of bill ackman is that there's a company called the indigo group

[00:26:53] yeah it's the kind of company i would like to work for this sounds like an interesting kind of uh

[00:26:57] business they do deep dives on companies and they're held on retainers by hedge fund companies like

[00:27:03] bill ackmans they paid these companies like the indigo group about ten thousand dollars a month

[00:27:07] as a retainer and then the indigo group will do deep dive on a company and present their results

[00:27:13] to the hedge funders with a view to the hedge funds either taking a long position or a short position or

[00:27:18] whatever and the indigo group presenting with a report on herbalife and they say this you know

[00:27:25] this is a pyramid scheme i think you should look at this now what

[00:27:31] ackman doesn't jump on it straight away because he's kind of thinking well what's the catalyst here

[00:27:36] and the catalyst is what an awful lot of investors are looking for when they get a report like this a

[00:27:41] catalyst is what's the smoking gun is there anything here that will lead this company to you

[00:27:47] know disastrous results like is there is there something here that's going to get the ftc to start

[00:27:51] investigating them or is there something in their business cycle that's going to lead to a huge

[00:27:55] downturn particularly a short seller right so so but yeah if you're short selling if you're well for

[00:28:00] herbalife that's what uh the indigo group were getting at they were saying you know should we talk

[00:28:05] a little bit about what short selling is i mean it's essentially it's essentially making a bet that

[00:28:10] a stock will decrease in value yeah you borrow the shares of a stock broker or somebody who has those

[00:28:18] shares yeah uh because you think that they're way too high you sell them into the market at that high

[00:28:23] price and then when the shares drop a few months later or a year later you buy them at the reduced

[00:28:29] cost give them back to the person you borrow them from and you pocket the difference while at the

[00:28:33] same time the person you borrow them from you give them a small fee for uh doing business with them

[00:28:37] yeah so that's this and apparently you can make you know it's a risky one because if if it wins you

[00:28:44] win you make a nice bit of money but if you lose the shares can keep going up and up and up

[00:28:48] and uh you know you could end up losing a whole load of money which is why bill ackman said he didn't

[00:28:53] get into short selling an awful lot it's a very risky business um so the herbalife uh proposal is put

[00:29:01] in front of ackman uh and he kind of he's looking at it he does a bit of digging but he's not too sure

[00:29:07] but the turn for him comes in may 2012 because herbalife do a conference call where they're presenting

[00:29:16] their revenues with analysts and on the call is a guy called david einhorn now david einhorn at this

[00:29:22] stage was a very very well-known short seller he had made his name by shorting layman brothers just

[00:29:30] before the crash um so he gets on this call and he asks the following question how much of the final

[00:29:39] sales this is of herb life products are sold outside the network and how much are consumed

[00:29:45] within the distributor base so that's the question really it gets to the crux of any company that's

[00:29:51] an mlm to try and find out are you a pyramid scheme yeah and the book vividly paints a picture of fear

[00:29:56] in the room when the caller is identified and the question is asked they weren't expecting

[00:30:03] einhorn no they weren't and and the very fact that he is on the call sends kind of jitters throughout

[00:30:10] wall street because people are thinking oh if einhorn's taking interest here he's going to go short on

[00:30:14] this and the fact as well that as you said it's fear and as well as they fumble because they don't

[00:30:21] have the answer now you kind of think how come they don't have the answer i believe they don't have the

[00:30:27] answer because they don't they say they don't have those facts they don't have those facts because they

[00:30:32] don't want to know how much of their product is sold within the network because knowing it would

[00:30:38] obviously i would say guarantee that they would be called a pyramid scheme because most of their product

[00:30:43] is consumed within the network and we'll get to that a bit later but des walsh who's the president

[00:30:49] of herbalife i'll tell you keith of all the characters in this story i think des walsh is the

[00:30:54] one who disappointed me the most because he's irish yeah he has this he wears this green tie he has this

[00:31:01] beautiful irish accent and us irish don't have a lot going for us except for our accent and our bit of

[00:31:07] charm and he uses this to promote an mlm which really disappointed me i i don't and i don't like

[00:31:14] the guy at all i just thought he was slippery i thought he was slippery yeah yeah i think you

[00:31:20] certainly fumble the ball i think you have that sort of inherent well i suppose we we won't get into

[00:31:27] philosophy on this but you either have that inherent sort of uh irish regard sneaking regard for a rogue

[00:31:35] yeah yeah and if he was too polished then and too successful the old irish begrudgery would come

[00:31:42] into it so i was kind of rooting for the rogue a little bit so well i mean there's definitely the

[00:31:48] rogue but i i suppose i have such a a dislike for mlms you know they really i just don't like the model

[00:31:55] and i didn't like seeing an irish guy pushing the mlm um but all the reports i had often like the

[00:32:02] american business reporters really took him they really like him so he does charm them really well

[00:32:07] he's he's a he's a great lad handler that's for sure but he he drops the ball here he said oh it's

[00:32:14] a 70 right in line with the amway ruling that said 70 has to be your uh sales now all the reports said

[00:32:21] of course they said this figure was wrong but none of the reports were able to say what the actual

[00:32:26] figure is and nobody's ever able to tell me what the actual figure is i even went as far keith as

[00:32:31] emailing there's a guy called robert fitzpatrick he's in the podcast the dream and he's written he's

[00:32:37] an expert on ponzi schemes and on pyramids he's written a book on his and i emailed him and asked him

[00:32:43] do you know what the figure is and he gave me back a really long very great answer but at the same time

[00:32:49] he said we're not able to get that figure it's impossible in in the times of big data and you know

[00:32:56] they have more information at their disposal now it should be reasonably simple for the company

[00:33:02] but they don't want to get the figure exactly exactly they don't want to get the figure and

[00:33:07] what's what proves this is that later on after des wals has fumbled this figure he comes out and he

[00:33:13] kind of says well look we've always been very upfront and said that most of the consumption

[00:33:16] comes from people who sign up to our network and just want to consume the product themselves because

[00:33:23] they get a discount for it but that doesn't make sense because if they're signing up to the network

[00:33:28] then they are within the network so you know they're not outside of the network they're signing up

[00:33:33] also he says people sign up to get a discount i don't know how many consumers you know buy three

[00:33:40] thousand dollars worth of a consumer product just to get a discount nobody does this secondly

[00:33:47] if they sign up to get a discount to get off a weight loss product or say a shake why aren't

[00:33:53] they buying slim fast it's about half the price even with the herbalife discount they're still paying

[00:34:00] more than they would for the competitor brand so that doesn't make any sense and herbalife will say

[00:34:05] well that's because our product is so much better that's why they're willing to pay a premium and

[00:34:09] then you kind of go well if your product is so bloody good why don't you just put out in the market

[00:34:12] so nothing about this makes any sense but anyway something something's telling me here

[00:34:17] instinctively that you've reached a conclusion on what you think of that product came

[00:34:23] you know i've never tasted it i've never tasted it but i've never tasted slim fast either

[00:34:30] ml i suppose i've been tainted by the fact that i have listened to the dream podcast and it is very

[00:34:36] good and anyway it just always struck me as dodgy yeah these you know if your product is so good

[00:34:41] just put it out there you know one tiny um story just before we go too far off you know betsy devos

[00:34:49] who was uh the education she yes she's one of the amway crew she is that's the dream goes into that

[00:34:56] oh does it oh yes yes yes her father started up uh and we with i think two or three other people

[00:35:02] and they go into all the way that they that these mlms have infiltrated yeah van andel is the other

[00:35:09] the other family yes yeah and for our listeners that's one of the reasons you know you're somewhere

[00:35:14] probably saying well if it's so bad how come these businesses have been going on for so long

[00:35:18] well as you said there you know what's her name betsy devos devos devos she was in trump's cabinet

[00:35:24] um she was was she for education education yeah um her her father set up amway these mlms have very

[00:35:34] very strong ties to politicians to political parties as well as this an awful lot of the lawyers who

[00:35:41] work for the ftc that that's the federal trade commission who are meant to police these mlms

[00:35:45] and an awful lot of those work for a few years in the ftc and then go off and get hugely paid jobs

[00:35:51] with the mlms so you've basically got the guys who are meant to be policing these mlms go off and

[00:35:57] start working for them so the mlms are very aware as to how to uh navigate all the rules and regulations

[00:36:03] and also do you have these former ftc people who are now dealing with their colleagues in the ftc

[00:36:08] exactly going to yeah to negotiate any deal and before before we move on just one more thing i can

[00:36:13] remember opening up one of the boxes full of the products and yeah it was a little envelope in it

[00:36:18] and it was this car sticker yeah and they encouraged us at one of the conventions put the car sticker on

[00:36:25] and it was free trade works which is sort of a reaganite type um slogan yeah and they wanted us to drive

[00:36:33] around wicklow and dublin and ireland with free trade works on the back of the car maybe not but

[00:36:40] anyway anyway digress digresses you so that's why so mlms have been allowed to

[00:36:48] to you know operate but they are always fighting and this is another thing as to why we'll see

[00:36:54] how they manage to to get by they're used to fighting their corner they're very skilled and very well versed

[00:36:59] so now einhorn is on this call and then akman is thrilled by this because now well akman says he's

[00:37:06] thrilled by this because he said now he doesn't have to be the public face of herbalife now he can

[00:37:10] just buy shares in herbalife and let einhorn be the public face short say it lasted 10 minutes

[00:37:17] yeah well it didn't last long at all because he's thinking okay einhorn is going to be presenting at

[00:37:22] this conference called the sown conference the sown conference is this conference where investors

[00:37:27] stand up on stage and present their either short position or long position and give their reasons

[00:37:31] for it it's called talking your book and everybody believed that einhorn was going to be presenting

[00:37:37] uh herbalife as his main presentation at this sown conference but he doesn't he presents a different

[00:37:43] company all together so now akman has a decision it's like does he go public with this does he become

[00:37:50] the castles does he become the public face i don't think it was that hard a decision for akman at all

[00:37:56] given his his ego his sense of uh i'll use this word again because i love it noblesse oblige

[00:38:01] and he decides you know what i'm going to be the catalyst here i'm going to be the public face of

[00:38:07] this even though in other articles he said he really didn't want to be this because it's such

[00:38:11] a grueling thing and he didn't want to you know get out there you can tell from the documentary that

[00:38:17] he loves this yeah yeah so and how big was his position at the time that ironhorn sort of

[00:38:24] faint at the time i'm not too sure but very quickly when he decides to become the public face

[00:38:30] he buys up again in typical fashion go big or go home he buys 20 million shares at a cost of about

[00:38:38] 48 each he's got almost a billion now at this stage by the time he decides i am going to be

[00:38:45] come public and in typical akman style not only does he go big or go home in terms of buying shares

[00:38:50] he goes big in terms of the publicity that he generates because by this stage akman is a very

[00:38:55] well-known business personality on wall street he makes for a good copy he's invited on to these

[00:39:01] business uh you know cnbc business shows and fox business shows all the time so he uses that to

[00:39:08] get a lot of publicity for this special sewn conference that he's having on december the 20th

[00:39:14] i tell you keith i would not like to have been at this event he uh goes on for three and a half hours

[00:39:20] he has 342 slides i mean jesus christ like it's a one-man show yeah yeah yeah and he calls her like

[00:39:31] now he despite the fact that it's three and a half hours and it's 342 slides he he makes some valid

[00:39:36] points he says that herbalife is the best managed pyramid scheme in the world he says formula one

[00:39:41] which is their uh replacement uh their meal replacement shake he says the only two billion dollar

[00:39:47] brand that no one has heard of which is true i didn't even know the name of their shake um he

[00:39:52] says that 88 of distributors make no money he pointed out that in 2011 a belgian court found herbalife

[00:39:59] guilty of being a pyramid scheme and he says that he expects the stock to go to zero and what he says

[00:40:06] as well i i can't wrap my head around this he says that when it does go to zero when he does profit off

[00:40:12] this he's not he's going to give his personal profits to charity because he considered any

[00:40:18] proceeds from a corporation so villainous to be blood money now okay what he's doing here is he's putting

[00:40:24] himself morally above all street which is fine but what i find preposterous here keith is he's putting

[00:40:31] himself morally above his own investors he's saying if i make any money this is blood money so i am not

[00:40:36] going to profit from this personally but all my investors in pershing square they they can take the

[00:40:42] blood money you take the blood money but i i'm not going to i'm above all that i mean it's just

[00:40:47] it's ludicrous um but it does have the desired effect the presentation because the stock over christmas

[00:40:53] drops to 26 so things are going well for bill this is working out for him but of course there's a big

[00:41:01] problem because there's been a lot of people waiting in the long grass for bill ackman to make a mistake

[00:41:08] and they see this as a mistake now you might think but why shares are down at 26 dollars he's got herbal

[00:41:14] life on the back foot here but the cold calculating wall street investors who are you know uh have been

[00:41:21] doing this for a long time they're looking at this and they're kind of going yeah that's all well and

[00:41:25] good but there was no smoking gun at the presentation everything he gave all the facts that he gave while

[00:41:31] damning and while showing that there's something very shady about herbal life they're all out there

[00:41:35] yeah they were already in the public domain right yeah but there's nothing new here i mean obviously

[00:41:40] herbal life would you know try and hide an awful lot of the facts in their 124 page agreement but you

[00:41:45] just do a bit of digging you'll find out man there's something very shady going on here so there was

[00:41:49] nothing new here um and they also realized that uh johnson had brought a lot of professionalism to

[00:41:56] herbal life they also realized that the day before uh bill ackman gave his presentation

[00:42:01] johnson came on to cnbc show and again um we have all these videos i'll have them in our blog

[00:42:06] and there's a link to us uh below the podcast johnson goes on to cnbc did you no i didn't watch that clip

[00:42:12] no the night before ackman's presentation he goes on to cnbc and he is spitting fire he is livid and he's

[00:42:20] going ackman's only doing this and he's doing it at the end of the year which a lot of people pointed

[00:42:25] out so that his end of year results will look good um and he points out all the reasons as to

[00:42:30] why ackman is doing that and while you're listening to your guy going guy this guy is going nuts like is

[00:42:36] this good for herbal life it is actually because an awful lot of the investors looked at that and

[00:42:41] realized herbal life are going to fight this tooth and nail they have huge cash reserves they're going

[00:42:46] to start buying back stock which is going to potentially put a short squeeze on ackman which

[00:42:50] we'll talk about in a minute and they also realize that herbalized revenues are still going really

[00:42:56] really strong so the share price is definitely undervalued at 26 when you take that into account

[00:43:01] and they also realize that only 20 percent of herbalized revenues come from the u.s so even if

[00:43:08] the ftc were to launch an investigation and impose huge penalties or even close down herbalized

[00:43:14] operations 80 of their revenues are coming from overseas so an awful lot of the wall street

[00:43:20] guys who are waiting as i said in the long grass for ackman they're kind of going okay 26 dollars

[00:43:25] i'm in i'm going to start buying and the first guy who starts buying is a guy called daniel lobe a

[00:43:31] former friend of ackman's who lost out big time i think he lost about 175 million in the target

[00:43:38] investment he starts buying and he ends up buying over 300 million dollars worth of uh uh herbalife now he

[00:43:45] goes on to he doesn't hold on to it for too long he holds on for a good few months and cashes out at

[00:43:49] 46 dollars and makes the lights with the money but while he's buying and while he holds on to him for

[00:43:54] those good few months he's putting pressure on ackman yeah and then at the same time herbalife

[00:43:59] starts doing a buyback and not only do they do buy back they also retire the stock that they buy

[00:44:04] so this is also putting further pressure on the shares because we talk about the share price now or

[00:44:09] squeeze in a minute ican has also been waiting for his opportunity and as soon as i actman gives his

[00:44:16] presentation i can start buying at 26 dollars and over the christmas holidays he sends all his

[00:44:21] associates out to do a deep dive on it on herbalife they talk to ftc former ftc lawyers they really do

[00:44:30] their due diligence and they kind of go this is way undervalued we're going to buy in and we're going

[00:44:34] to buy in big and ackman in or ican ends up buying 18.5 percent of herbalife so this is this is revenge

[00:44:43] this is revenge but it's also i mean i can want revenge but also make money out of it you know

[00:44:51] has uh gets the the cherry on top as well and as i can rightly point out ackman is in danger of being

[00:44:58] caught in a short squeeze now i understand what short selling is i do understand what short squeeze is

[00:45:03] in a way but uh when it comes to these financial instruments i i have to quote the experts here so

[00:45:09] this is what the short squeeze is it's a feedback loop that occurs when excess demand for a stock

[00:45:16] pushes the prices up pressuring the short sellers to cover their position which requires them to buy

[00:45:21] stock which further pushes the price back up so when you're short selling sometimes you have to cover

[00:45:26] your position and because you have ican lobe herbalife all buying back stock and also giving the rest of

[00:45:33] the market confidence that yeah herbalife is undervalued more people are buying stock and

[00:45:38] it starts pushing the price up and this puts a lot of pressure on and and herbalife's strategy of

[00:45:44] buying back the shares and retiring them reduced the number of shares available in the market exactly

[00:45:49] very clever exactly yeah yeah so this is all uh happening now this is in early 2013

[00:45:58] and it's a good story on wall street you know people who are in the know are looking at this

[00:46:02] and kind of getting a bit of a giggle out of it but it really gets catapulted into the stratosphere

[00:46:09] when uh we have this i call it it's a jerry springer wall street edition because this is where

[00:46:15] ackman is on a cnbc show with scott wagner the guy who wrote the book that we read so he's on a phone

[00:46:22] interview with him where he's responding to some criticisms that ican is making about his herbalife

[00:46:26] best but while he's on the call with scott wagner ican calls it and uh they put ican true they say

[00:46:34] now they do ask ackman they say hey bill we have a car like in here and he wants to uh come in on the

[00:46:39] call and bill ackman says yeah okay let him in and i'll tell you did you watch no no i didn't watch

[00:46:45] this video okay everyone everybody should watch it because here's the opening lines of carol ican

[00:46:50] he says and there's a few lines here he says i've really had it with this ackman guy i went to

[00:46:56] tough school in queens and they used to beat up the little jewish boys he was like one of these jewish

[00:47:01] boys crying that the world was taking advantage of him and ican then went on to recount how he once

[00:47:07] had a dinner with ackman and he said i couldn't figure out if he was the most sanctimonious guy i

[00:47:12] ever met in my life or the most arrogant and then he quotes uh former british prime minister disraeli

[00:47:18] when disraeli is talking about a pompous assistant that worked with him he said young man i'd be happy

[00:47:24] if i could be as sure about one thing in my life as you are sure of everything so he lays into him

[00:47:30] like it's now it's it's it's tv gold and it's one of the reasons i say it's the reason scott

[00:47:36] wagner the journalist he must be in the middle of this kind of going this is brilliant i mean

[00:47:41] apparently trading on wall street went down by 23 while this was going on because all the traders

[00:47:48] just stopped and watched tv so huge huge public spat oh it was brilliant and how did ackman defend

[00:47:55] himself you know what in ackman's defense i know i'm giving him an awful kick in here he was very cool

[00:48:02] and collected he was very calm he shoots back but in a very calm voice he says ican isn't an honest guy

[00:48:10] this is not a guy who keeps his word this is a guy who this is a guy who takes advantage of the

[00:48:15] little people now ackman saying take advantage of the little people you're kind of going what

[00:48:18] but anyway he uh he he's very cool and collected ican is really repping ican is mad as hell um they both

[00:48:28] give their own versions of the feuds that started all this with the you know the shares and the court case

[00:48:34] and i get the impression that they both 100 believe their own version of what happened there so it's

[00:48:42] hard to know who's telling the truth there but i can also rightly point out that ackman takes

[00:48:47] huge risk and is really exposing himself to the the short squeeze so it's a great great interview uh

[00:48:55] it's it's ridiculous these two guys you know uh having it out on public tv and calling each other

[00:49:01] names and all this but it is tv gold and i remember richard christine richard she's the one who wrote

[00:49:07] the report for the indigo uh group in the documentary you know she said that this whole uh you know feud

[00:49:15] is kind of overshadowed the herb life story but i don't agree i i think it's brought it to the fore

[00:49:21] it really everybody knew about this story now everybody knew about the herb life bed i mean

[00:49:27] the book that we read wouldn't have been written if it wasn't for this big feud uh we wouldn't be

[00:49:31] doing this episode if it wasn't for this big feud so it really brought it to the to the fore and and

[00:49:37] icon and lobe with their backing of herb life is giving it this big boost but then things get even

[00:49:42] worse for um ackman in june 2013 because george soars's fund starts investing in herb life and they've

[00:49:49] got no skin in the game on a personal level they're doing this just because they think herb life is

[00:49:54] undervalued and it's a good bet and also in 2013 the belgian court overrules their initial verdict

[00:50:00] that had called uh said that herb life was a pyramid scheme so uh there's a story in one of the

[00:50:08] magazines that i read it might have been in the book as well that ackman has this uh fighter pilot

[00:50:13] ejector seat in his office as a remind no oh he has a fighter pilot seat in his office as a reminder of

[00:50:20] when to bail and you're kind of going well you should have bailed now because things are getting

[00:50:24] bad and you should have just cut your law shouldn't get into the airplane yeah exactly but he just

[00:50:30] couldn't help himself keith he couldn't help himself but he doesn't bail uh he goes into overdrive

[00:50:36] and he spends over 50 million on an intense lobbying and pr campaign he really doubles down and he goes

[00:50:44] very public on this now the lobbying does pay benefits uh pay dividends as we'll show later

[00:50:51] but it doesn't initially because as we move into 2014 things get even worse for ackman the new york

[00:50:58] times publish a 4 400 word article where they detail his pr campaign and they are able to show that

[00:51:04] there are 26 instances where the exact same letter the exact same wording purportedly written by 26

[00:51:11] different people is sent to legislators asking them to investigate um herbalife as well as this

[00:51:17] ackman continues with his presentations where he over promises and under delivers uh the presentation

[00:51:23] that we're referring to is at the very start of betting on zero where he goes on and he gives

[00:51:28] another three hour presentation and at the end of it even members of the audience are exasperated

[00:51:34] they're more or less there's a q a after the presentation and they're more or less asking ackman

[00:51:39] where's the beef you're giving us all this bad information on herbalife but that information is

[00:51:44] already out there you're not coming out with anything new here and what's even more humiliating

[00:51:49] for ackman is that while he's giving this other the second presentation herbalife share prices is going up

[00:51:55] while he's talking and at the end of the day of his presentation their share price has gone up by 25

[00:52:01] percent and herbalife executives are joking to themselves they're kind of going we want ackman to

[00:52:07] present every day because he's doing us a huge favor here and by the end of 2000 or by early 2014

[00:52:14] as a result of all this herbalife shares are now at 84 dollars higher than they've ever beat so

[00:52:21] he's in a bad position he's in a bad position um and things aren't looking good for him and one of the

[00:52:29] big reasons that you know another thing he doesn't have a smoking gun but he's also with all the money

[00:52:35] and all the investment that he's putting into it he's not able to bring out any victims there's not

[00:52:40] many people coming forward now in betting on zero you get the impression that there are loads of victims

[00:52:45] or that there are victims protesters almost yeah but there's only a handful of them there's not

[00:52:51] there's not you don't have like they have a few million distributors and uh proof of this is in a

[00:52:57] class action that was taken or that was settled in 2015 and this is an interesting fact

[00:53:02] 1.5 million distributors were contacted about this class action and only 0.5 percent of them

[00:53:09] files claims which apparently even by class action standards is really small and when the claim was

[00:53:16] initially uh filed wall street and investors expected herb life to have to pay out about a billion

[00:53:22] in actual fact they ended up paying 17.5 million so you'd you have to i had to bring that up that there

[00:53:30] wasn't a whole load of victims coming out now my thesis behind that is because an awful lot of the

[00:53:35] so-called victims are the people who go into it kind of thinking yeah like you with amway you wouldn't

[00:53:41] have filed a case against that no because you got into it kind of thinking yeah okay i'm going to make

[00:53:45] a bit of money out of this this is worth investing and they end up with three thousand dollars worth

[00:53:50] of product and they realize that you know this is really hard because the only way they're going

[00:53:54] to make money is by recruiting other people so instead what they do is they kind of go ah screw

[00:53:59] it you know what i've got three thousand dollars worth of weight loss products i'm just going to

[00:54:04] you know consume them myself give them to friends and family and you know be done with this also

[00:54:08] probably the 120 page legal document you spoke about exactly exactly 124 pages yeah

[00:54:15] those other board pages was even out the signature bar but um maybe there was kind of terms and

[00:54:24] conditions in there yeah you know very well could be very well could be but that's another reason the

[00:54:29] ftc are saying to akman we normally take cases when we hear loads of victims coming forward

[00:54:37] so that's another reason no smoking gun no victims and akman by this stage is under huge pressure he's

[00:54:44] even close to considering to cover his entire short position when in march 2014 his lobbying of ftc

[00:54:52] does pay off because ftc announced that they're going to open an investigation into herbalife so this

[00:54:57] is significant and what even makes what turns the tide even more is that for the first time in years and

[00:55:04] years herbalife for the next two quarters experienced their first drop in revenues and so by the end of

[00:55:11] 2014 their shares now have dropped below 40 and akman's fund was on a high his fund was up 35 percent

[00:55:19] and he had over 20 billion dollars in assets now so things are now they've turned the other way things

[00:55:26] are now looking good for bill now he's on the high horse but that's what i love about this story keith it's

[00:55:31] full of twists and turns and akman again goes big and uh go big or go home he does another big bet on a

[00:55:41] company called valiant uh and this is important because it uh it shows the position or the sort of

[00:55:49] difficult position akman gets himself in as herbalife case keeps going so valiant is a canadian company

[00:55:58] a pharma company and akman buys into in 2014 he buys into it lace like the story of valentine has

[00:56:05] been going on for a while and the shares are now at 161 dollars when he gets into it and for some

[00:56:11] reason i can't figure out akman is is smitten by this company and it wasn't i'm not looking at this

[00:56:17] with hindsight even back then people were saying you know why is this company going so big they

[00:56:22] considered it a roll-up company yes it kept acquiring and acquiring it it just kept acquiring and

[00:56:27] and then it kept on cutting costs by cutting out research and development which is what most

[00:56:32] roll-up companies do they buy grow by acquisition and then cut costs but valiant did even worse than

[00:56:39] that valiant also made its profits by cutting r&d and then do massive price gouging on really important

[00:56:47] drugs like you're talking about a heart drug called ispirel it increased from 4 489 dollars to 36 000

[00:56:55] dollars in two years another diabetes drug it went 90 pills went from 900 to 10 000 so these were price

[00:57:05] gougers and this is where akman's you know this idea that i already invest in what's good for america

[00:57:12] like what a load of bullshit because any bit of due diligence would have shown that this company was

[00:57:19] price gouging to huge degree and politicians did bring it up and akman came into hearings and kind of

[00:57:24] said i wasn't aware of this and this is another thing about akman um i forgot to mention one of my

[00:57:30] sources was the lex friedman podcast and akman did a big three-hour interview with it i only ever

[00:57:36] occasionally listen to lex because it's such a commitment it is it is well that's my level of

[00:57:42] commitment to this i listen i listen to three hours of bill akman um and he can come across sometimes

[00:57:49] as being you know oh yeah he sounds all right but the valiant thing is important because as we'll talk

[00:57:54] about it he ended up losing a ton of money on the valiant deal and he sent out a letter to his um

[00:57:59] uh investors saying i take full responsibility i'm 100 responsible responsible for this valiant deal it's

[00:58:06] all my fault he'll say that publicly but you know personally that he doesn't believe he's wrong he never

[00:58:12] believes he's wrong because in the lex friedman podcast when valiant is brought up he says i was

[00:58:19] really busy with investors at that time and i was flying all around the country i delegated valiant

[00:58:24] to those within pershing and the implication being that if i had been involved in it myself it wouldn't

[00:58:30] have happened so why publicly he'll say yeah it was my mistake personally he'll he thinks himself

[00:58:37] that he's never wrong he actually blamed his his subordinates on the valley who he hired yes who he

[00:58:44] hired as well and anyway he was very involved in valiant there's letters and emails going over

[00:58:49] between him and the ceo where he's praising the ceo he's gushing in his praise so in a in 2014 he's

[00:58:56] buying valiant and in 2015 valiant crashes because there's public hearings into their um price

[00:59:03] gouging at the same time reports come out showing a total lack of transparency in how valiant ran its

[00:59:09] business now i won't hold that akman accountable for that valiant was hiding the way it was doing

[00:59:14] certain parts of its business but he knew all about the the price gouging and all that and the shares

[00:59:20] in valiant started to tumble and akman kept on holding out holding on to him again he should have

[00:59:26] known when to bail i don't know why he has that fighter pilot seat in his office because he doesn't seem to

[00:59:31] uh know what it's about at all so 2015 valiant is tanking now and then herbalife starts reporting

[00:59:39] strong earnings again so even though the ftc investigation is ongoing it's the stock price

[00:59:45] starts rising it starts going above 60 dollars um and then 2016 comes along valiant ends up losing

[00:59:55] uh akman over three billion dollars so he loses tons of money it's one of his worst deals i think it is

[01:00:03] his worst deal ever but in 2016 the ftc then also announced that they have come to a settlement with

[01:00:11] herbalife so this is even worse news for valley or for akman did you uh dig into the ftc uh settlement

[01:00:19] at all yeah i found this blackflake i did yeah i mean it's pretty close to calling it it's a bit of a

[01:00:32] walk like a duck quite like a duck type story yes but doesn't actually call them out as a pyramid

[01:00:39] that's exactly my thoughts of it they said they said the settlement that they charged herbalife with

[01:00:47] it said its compensation program doesn't incentivize retail sales but broader focuses on the recruitment

[01:00:53] of additional participants who will fuel the enterprise by making wholesale purchase of the

[01:00:57] product and the chairwoman said at the press conference when they announced this reporters

[01:01:02] were saying but it seems like you're doing everything but calling them a pyramid team why not

[01:01:07] and the chairwoman said my focus isn't on the label and i quote herbalife were not determined

[01:01:15] not to be a pyramid scheme so in other words what they are saying this is really baffling if they

[01:01:23] were not determined not to be a pyramid scheme then by logic that makes them a pyramid scheme

[01:01:28] so why not call them that and again i suspect that it's the ties between the ftc and the mlm sector

[01:01:36] with former ftc executives working with industry combined with the fact that these mlms have been around

[01:01:42] for so long have such strong ties with politicians and also with communities i mean the one thing you

[01:01:50] got to get out of this is that the dream the podcast i mentioned is very critical of mlms except for one

[01:01:56] part and that's the whole you talked about it briefly the uh there's a community about this yeah and an

[01:02:06] awful lot of the people who are involved in mlms they talk about how okay i didn't make any money out of it

[01:02:12] but i met some really good people and i learned an awful lot and there's this aspect of it as well

[01:02:17] even though okay but it was all done on deception and it wasn't very kosher and you have this 124 page

[01:02:23] agreement people do sometimes get a lot of it now that's not to take away from the fact that a lot

[01:02:28] of people they lose money yeah you might as well go to college if you want an education you know because

[01:02:33] you're going to pay yeah the other but of course but anyway ftc ruling

[01:02:40] i guess had had it was interpreted slightly different differently by by the people who consumed it then

[01:02:47] so i guess yes johnson went around sort of champion the vindication oh johnson said it was a even though

[01:02:56] the chairwoman said she determined she she had not determined it not to be a pyramid scheme and even

[01:03:01] though they were fined 200 million dollars and fundamental changes had to be made to restructure

[01:03:06] their business practices they did you know come down heavy enough on them johnson came out and said

[01:03:11] it was an acknowledgement that our business model is sound now having said that he left the business four

[01:03:17] months later so i don't know what that says about what he thought about the uh the the ruling but

[01:03:24] wall street made a determination because it wasn't called a pyramid scheme because it wasn't closed

[01:03:31] down they saw it as a win for herb life and the shares rallied they got past 70 dollars

[01:03:38] ackman eventually i think a year or two later had to hold up his hands and say he thought maybe the

[01:03:43] restructuring would put pressure on herb life and they'd eventually you know close down but they didn't

[01:03:49] um primarily as well i assume because an awful lot of revenues weren't coming from america anyway

[01:03:53] eventually he had to sell he lost a billion on his herbal life um deal and uh his funds went from 20

[01:04:01] billion down to 11 billion because with valiant and everything he was having a tough time if it was

[01:04:06] poor bad just 11 down to just 11 billion in funds and i can held on to his shares and eventually cashed

[01:04:13] out in 2021 and pocketed 1.3 billion wow so now so you would think they're okay i can one ackman lost

[01:04:23] herbal life one but if you look at it in the last year yeah you'll see that whatever you might say

[01:04:30] about bill ackman he does bounce back and i think that probably comes down to the fact that he never

[01:04:36] thinks he's wrong and if you never think you're wrong you obviously have so much self-belief that it's

[01:04:41] easy or it's easier to bounce back yeah but didn't his planned ipo of pershing he had he had to pull

[01:04:48] it a couple of months he had to pull that yeah yeah that that's very that's very recent all right

[01:04:53] but overall pershing square it's back up to 18 billion dollars now he's had a very steady rise i

[01:05:01] think his uh he's been given very good returns for the last four years you are right about the

[01:05:05] recent ipo he's had big wins with chipotle and alphabet i can has had a bad year he's lost 10

[01:05:12] billion in net worth and over the last few years his net worth has gone from about 20 billion down to

[01:05:17] about 5.3 billion mainly because in the last year a short seller produced a report that highlighted some

[01:05:23] irregularities with the way in which his companies were structured as well as uh something iffy about

[01:05:29] some of the loans that i can hadn't disclosed so i can has had a pretty bad year i feel for carl and

[01:05:37] herbalife has had it even worse herbalife's market cap has dropped down to 830 million down from a high

[01:05:42] in 2019 of 7.4 billion and even during the whole i can act man feud it was all around always around

[01:05:49] 5 billion so herbalife has done uh very badly in the last few years and johnson even came back as ceo so

[01:05:56] maybe lance armstrong stroke mr spock would be able to steady the ship but um yeah it's uh it was a

[01:06:03] fast what a saga yeah maybe carl i can't should spend more time on twitter x like bill and his

[01:06:11] fortunes will turn around well that's the reason why i mean it seems like we've covered bill ackman

[01:06:17] in this podcast but i've got a feeling with i with ackman that there's going to be another few twists

[01:06:23] and turns to the story and i think we'll definitely do an episode on ackman in the future i think i can

[01:06:28] will you know i can is he's well into his 80s now he's coming near the end of his career and i think

[01:06:33] we'll definitely we'll have to yeah his his origin story will be a fascinating one yeah yeah yeah and

[01:06:40] he's such a such a strong character and even actually strangely they made up ackman and i can

[01:06:44] very publicly on tv i think one of them was being interviewed at this show that was being televised

[01:06:50] and then they said and by the way folks we got a very special guest here i think it was

[01:06:53] i can was being interviewed we got a very special guest and ackman comes out from the corner of the

[01:06:57] stage and they give each other a bear hug and they're all friends and all that so uh it worked

[01:07:02] out well for the two of them i can't understand how they become friends after calling each other all

[01:07:06] those names but all right or ackman stole the the limelight i mean if one was cynical

[01:07:13] yeah of course neither of us are of course but uh there you go yeah but yeah great story really

[01:07:21] enjoyed it cool so on to the next one on to the next one i'll uh yeah i've got oh no it's your next

[01:07:28] it is oh yeah yeah it's an interesting one it is yeah yeah um from from from fairly recent history too

[01:07:35] cool all right talk to you soon cheers i thought you take care bye

[01:07:40] but