Congressional Democrats assist billionaire hedge-fund manager in Wall Street feud by Josh Kaib and Will Swaim of Watchdog.org / Franklin Center

Two years ago, billionaire hedge-fund manager William Ackman announced boldly — from a stage in a Manhattan conference center — that his Pershing Square Capital Management had taken a $1 billion short position on publicly traded Herbalife Ltd. (NYSE:HLF), the Los Angeles-based maker of nutrition products.

Bill ackman
Bill Ackman – Photo via Bloomberg

He was, in other words, betting that Herbalife would fail.

Hoping to persuade investors to bail on the company’s stock, he has repeated the claim he made then — that Herbalife unfairly targets the poor, and especially Latinos, in what he calls “the best-managed pyramid scheme in the history of the world.”

But two years on, Ackman’s high-profile multimedia battle has apparently failed — and even backfired. He recently admitted that another glossy presentation, in July, inadvertently set off a rise in Herbalife’s stock.

Many would give up. But not William Ackman.

In his crusade against Herbalife, Ackman has lately taken the fight for hearts and minds to a place where the minds are a little smaller: Capitol Hill.

Buying influence in D.C.

Through several K Street lobbying firms, Ackman has reached out to Democrats, especially those in the Latino caucus. His goal: To get those Democrats to use the threat of a Federal Trade Commission investigation to accomplish what Ackman’s high-powered media campaign and the marketplace could not – the takedown of an entire company.

“It’s terrifying,” said Veronique de Rugy, a senior research fellow at the free-marketMercatus Center at George Mason University in Virginia.

“This is the danger of a government that is almost limitless in its power and reach,” she said. “It gives private actors the incentive to use government influence to manipulate the marketplace.”

She said Ackman’s tactics were “a kind of crony capitalism” in which the wealthy use their access to achieve through politics what they cannot win in the free market.

Ackman says he won’t profit from is Wall Street play. Speaking on CNBC at the dawn of his campaign against Herbalife, he called the nutrition-maker’s profits “blood money,” and said he would give any of his own profits on the deal to charity.

“I don’t want to make any money off of this,” he said.

Ackman’s critics say his promise extends only to his own income after expenses, and not to other investors in his hedge fund.

However pure his motives, government documents reveal Pershing Square’s attempt to use the federal hammer on Herbalife, spending $250,000 this year alone on such high-profile lobbyists as Moffett Group , Wexler & Walker Public Policy Associates, Ibarra Strategy Group and Mayer Brown LLP. Such disclosures do not identify officials with whom the lobbyists met, nor do they specifically mention Herbalife. Disclosures from all four firms use the same language to describe the subject of their meetings on Capitol Hill: “Issues relating to enforcement of consumer protection laws and securities regulations relating to pyramid schemes.”

Former Obama adviser Bill Burton, now with Global Strategy Group, also is reportedly assisting Pershing Square with messaging.

Targeting congressional Democrats

Not leaving everything to lobbyists, Ackman reportedly “personally lobbied” California Rep. Linda Sanchez, D-Calif., and U.S. Sen. Edward J. Markey, D-Mass. Brian Herr, a Republican who is running for Markey’s seat in November, filed an ethics complaint against Markey, complaining the incumbent had abused his office in the Ackman case. Following his meeting with Ackman, Markey became the only member of the U.S. Senate to call for an FTC probe of Herbalife, Herr said. The company’s stock dropped after Markey’s complaint went public, and dropped again when the FTC announced that it would investigate Markey’s charges. A Boston Globe investigation concluded that Markey’s letter to the FTC overstated constituent complaints against Herbalife.

“Ackman is a liberal hedge-fund ‘master of the universe’ who seeks to profit by manipulating the political system with the help of allies like Ed Markey,” said Phil Kerpen, president of the free-market group American Commitment. “The scheme would be career-ending if these guys were Republicans, but Democratic bad behavior just doesn’t have the ability to shock anymore.”

Markey has admitted he met with Ackman, but said he did not know that Ackman had shorted Herbalife stock.

Markey was following a path to the FTC blazed by Rep. Linda Sanchez. On June 5, 2013, she wrote to FTC Chair Edith Ramirez, an Obama appointee, expressing her “concern about the marketing and business practices of Herbalife, Ltd. In particular, I am troubled by allegations that this company may be harming consumers — especially those from our country’s most vulnerable populations.”

Evidence uncovered by the New York Times suggests Ackman had advance knowledgeof the letter. According to the Times, Ackman told fellow hedge-fund managers at a Midtown Manhattan steakhouse that Linda Sanchez sent a letter to the FTC just a day after it was sent. But the letter was not yet public, and the commission’s disclosures reveal that the letter was not yet stamped as received.

Linda Sanchez’s office tried to smooth this over later, releasing the letter as part of a July 3, 2013, news release — backdated to look as if the letter had been made public the day it was sent to the FTC, June 5.

That would make Ackman’s role in the process appear cleaner. But it wasn’t true. Linda Sanchez’s office later admitted it backdated the news release, but defended the move, saying the congresswoman believed the letter had been made public as soon as it was mailed to the FTC, according to the Times. Her office also admitted sending Ackman a copy of the letter a month before putting it online as part of the news release.

Ackman’s FTC strategy became a sister act. In July 2013, Eduardo Lerma, a senior aide to Linda Sanchez’s sister, U.S. Rep. Loretta Sanchez, D-Calif., emailed staff associated with members of the Congressional Hispanic Caucus. Lerma’s goal: to convene a July 18 conference call to persuade caucus members to press the Federal Trade Commission into service on Ackman’s behalf.

Indicating Loretta Sanchez’s sympathy with Ackman’s position, Lerma’s email said he and his colleague Jessica Fernandez “would be on hand to answer any questions you might have.” But don’t worry about their expertise on the subject of Herbalife: “We will also be joined by Roy Katzovicz, the chief legal officer for Pershing Square Hedge Fund to offer further background on the issue,” Lerma wrote in the July 16, 2013, email.

Lerma didn’t have to tell caucus staffers who Pershing Square is. Perhaps indicating the full-court lobbying effort, his email said, “Many of your Members have been approached on this issue and should be familiar with it.”

Fernandez, now a lobbyist, did not respond to a request for comment.

‘A type of bullying’

What happened at the Kill Herbalife caucus call isn’t clear. What’s clear is that 10 days later, on July 26, 2013, Loretta Sanchez and caucus colleague Michelle Lujan Grisham,D-N.M., signed off on a letter to the FTC’s Ramirez. The letter pretended to a

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