Charlie Gasparino of Fox Business News could have uncovered the latest activist hedge fund investing strategy, all as Herbalife Ltd. (NYSE:HLF) claims to have discovered bugs in its Los Angeles headquarters.
According to Gasparino’s report, Herbalife discovered “non-governmental bugs” over the past year. Herbalife is locked in a death cage battle with activist investor William Ackman, who has previously stated he thought the company’s share price could drop to zero rather quickly if regulators determine the company is a pyramid scheme or worse. Gasparino noted that Ackman has not been accused and he is unaware of who is behind the event.
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Ackman wants to see stock go to zero
On April 23, ValueWalk reported that Ackman said he is going to “take Herbalife Ltd. (NYSE:HLF) to the end, take this thing to zero,” then asks the zinger: “Things are going in your direction at this point, things have finally cracked. Are you not going to get out of this trade until it goes to zero?” The translation of this question is: are you going to pulverize Herbalife to the point of death, or are you going to take your profits then leave the semi-conscious victim just enough life to live? “I don’t think this stock gradually goes to zero,” Ackman revealed. “I think it’s more of an overnight phenomenon.” In other words, when I punch someone they are going down to the canvas quick.
Investigation and details forthcoming?
It is unclear of the validity of the claims at this point. What doesn’t make sense is that Herbalife Ltd. (NYSE:HLF) claims to have found the bugs over the course of a year but is just now revealing those bugs. Also, how one determines a bug is “non governmental” might be considered speculative and pointing to potential suspects.
The serious criminal nature of electronic eavesdropping is unclear. Different states have different penalties and prosecution of this law is sporadic and sometimes politically motivated.
Speculation and opinion
Who knows. Perhaps one day Ackman will get together with the FBI, NSA and Google to really get some spying done. Robert Khuzami could make introductions. Perhaps if Ackman had access to the SEC Edgar database this could help his trading? Isn’t there an “MF Global level of access” that allows items to be manipulated? This, of course, could all be inaccurate speculation.
The only serious question at this point is where to categorize the bugging strategy in the pantheon of “intimidation” activist hedge fund categories? Readers will recall ValueWalk previously discussed a new category of hedge fund based on intimidation tactics. The office bugging tactic might fall neatly under the Intimidation > Regulatory Capture category. But this, too, might focus on one hedge fund in particular.
In the end, however, the issue of bugging isn’t likely to play a factor in the halls of justice where the most important decisions will be made regarding Herbalife Ltd. (NYSE:HLF)’s future.
Gasparino: Herbalife found listening devices at its LA HQ
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