Former Pershing Square analyst Shane Dinneen is probably best known as the co-author of Pershing’s Herbalife Ltd. (NYSE:HLF) short, before resigning earlier this year. There had been speculation that the pressure of having led the research leading to such a high-profile and controversial short, but that doesn’t seem to be true now that he has reopened his case in a recent article on Seeking Alpha.

herbalife LTD HLF

“Herbalife’s headline numbers in Q1 seem good at first blush, but below the surface, cracks are beginning to appear in the foundation,” writes Shane Dinneen, who bypasses all the speculation about what will happen with ongoing investigations to comment on 1Q14 earnings instead.

Herbalife’s Venezuela assets valued at an unrealistic exchange rate

The biggest problem that Dinneen finds is that Herbalife Ltd. (NYSE:HLF) wrote down assets in Venezuela by changing the exchange rate it uses to value Bolivar-denominated assets from 6.3x to 10.7x, but according to the Venezuelan central bank the exchange rate should be closer to 50x and Herbalife exchanged 5.3 million bolivars for USD at a 56.2x rate in the last quarter. If the write-down had moved the exchange rate all the way to 50x, Herbalife would have had ~$500,000 in GAAP net income last quarter, so basically zero GAAP EPS.

This also impacts Herbalife Ltd. (NYSE:HLF)’s reported cash flow from operations, which increased 39% year on year to $190.6 million last quarter. Dinneen argues that the devaluation of Venezuelan assets can be viewed as a recurring adjustment: it happened in 1Q13, it happened in 1Q14, and since there is still a gap between the rate that Herbalife uses and the market exchange rate, it will happen again.

“With this perspective, comparing Q1’14 to Q1’13 cash flow from operations (and adjusting for exchange rate changes) suggests Herbalife’s cash flow declined from $121mm to $90mm,” writes Dinneen.

Herbalife canceled its dividend payments

Dinneen also attacks Herbalife Ltd. (NYSE:HLF) for canceling its dividend payments, arguing that the parent company wanted to have enough cash on hand to manage its buyback program and capex commitments without taking on more debt or repatriating cash from other subsidiaries. While that might be true, it seems likely that Dinneen (who is short Herbalife via his investment in Pershing Square) is actually one of the targets of the canceled dividends. Since a dividend payment would lower the stock price, canceling it devalues any put options that are set to expire in the next year or two – which Bill Ackman very publicly holds.

Confirmation of earlier views

A source close to Dineen told ValueWalk several months ago, that the reason Shane is because he felt under a lot of pressure being the ‘the Herbalife guy’, which ended up becoming an international story. The pressure and negative attention was the reason that Shane left according to this source. Contrary to rumors, Shane never left Pershing because ‘the HLF bet was going bad.’ The recent post by Shane in which he discloses a short in HLF is further confirmation of what ValueWalk had learned upon his departure.

A spokesperson for Pershing Square did not respond to requests for comment.