Excerpted from Whitney Tilson’s latest email to investors.


Whitney Tilson
Whitney Tilson

The subtitle of this article asks the right question: “Why is a so-called populist trying to dismantle America’s most effective consumer watchdog?” In his inaugural address, Trump promised that “the forgotten men and women of our country will be forgotten no longer. Everyone is listening to you now.” One couldn’t find a better litmus test to determine whether someone is really looking out for the forgotten people of this country than support for the Consumer Financial Protection Bureau, which has done INCREDIBLE work to rein in the myriad ways the financial sector preys on average folks (to the tune of more than $3,000 per person per year in fees, overdraft charges, excessive interest, etc.), while simultaneously showering one-percenters like me with free services, 2%+ cash back on all credit card charges, etc. In light of this, Trump trying to destroy the CFPB is inexplicable (at least until you figure out that he conned the forgotten men and women and is now betraying them):

It was also the opening salvo in a full-fledged war to destroy the law’s most high-profile and effective creation: the Consumer Financial Protection Bureau.

It’s no surprise that a Republican president with close ties to Wall Street would target the CFPB. The watchdog has been a lightning rod for Republican outrage ever since Elizabeth Warren first proposed the idea as a professor at Harvard Law School. As soon as the agency was created, Republican lawmakers began trying to curtail its power or eliminate it outright. GOP ads depict the agency as a neo-Stalinist ministry that is the natural enemy of American consumers. “The CFPB supposedly exists to protect you,” House Speaker Paul Ryan tweeted after the agency levied a $100 million fine against Wells Fargo for incentivizing widespread fraud against borrowers. “But instead it tries to micromanage your everyday life.”

As a self-styled defender of the little guy, Trump should actually be working to strengthen the CFPB, not dismantle it. During his campaign, Trump railed against the global financial elite who had enriched themselves at the expense of ordinary Americans. The working class was devastated by the deep-seated corruption that caused the financial crisis, and Trump’s electoral strongholds are high-density zones of home foreclosures, subprime loans, and payday lenders—exactly the sort of predatory schemes the CFPB was designed to police.

2) It speaks volumes that neither Trump nor Icahn think there’s anything wrong with what’s going on here.

“This looks more like what you’d see in a banana republic,” says Tyson Slocum of Public Citizen, a liberal watchdog group. “You’ve got a strongman who surrounds himself with billionaires or wealthy advisers who conduct the business of government to benefit their business.”

Icahn makes no apologies for this. Sipping a glass of pineapple juice in his 47th floor corner office on March 9, the 81-year-old investor says he’s surprised by all the controversy, which he sees as a fake issue generated by well-funded opponents. “I have a right to talk to the president like any other citizen,” he says. “Especially if I think he respects me, why the hell shouldn’t I call him?.?… It may sound corny to you, but I think doing certain things helps the country a lot. And yeah, it helps me. I’m not apologizing for that.”

Icahn would seem to inhabit an extraordinary position of privilege in the Trump administration. Except that he’s not technically a part of the administration. As a special adviser, he’s not a government employee and receives no compensation. That means he doesn’t have to relinquish any of his vast financial holdings, nor is he subject to federal ethics rules that typically apply to people who work for the president.

Every part of Icahn’s portfolio is touched by government regulation. There’s American International Group Inc., subject to strict federal oversight under a 2010 law Trump says he’ll revise; Federal-Mogul Holdings Corp., an auto parts maker with plants in China and Mexico; and Herbalife Ltd., a multilevel marketer facing a May deadline to comply with a Federal Trade Commission settlement. Says Slocum: “This is the purest definition of a conflict of interest that you can get.”

3) Good to see more scrutiny of Mallinckrodt and H.P. Acthar, which embody everything that is wrong with our healthcare system, especially pharma. H.P. Acthar is an old off-patent orphan drug with one proven use, for infantile spasms. Then Questcor (which I was short back in the day) bought it in 2001 and then jacked the price from almost nil to ~$24,000/dose and then plowed much (around 1/3) of the proceeds back into various ways of bribing doctors to prescribe it (maybe legally, believe it or not) for 18 other ailments like multiple sclerosis, for which there is ZERO evidence that it’s effective (or more effective than alternatives that cost a tiny fraction as much).


I didn’t think it was possible to be more scummy and scammy than Questcor, but H.P. Acthar’s new owner, Mallinckrodt appears to be, with further price hikes (see chart below; one dose is now nearly $40,000!) and more pushing the drug into new, unproven areas, more frequent dosages, etc.


And we taxpayers are now paying more than $500 MILLION per year for this scam (plus another ~$500M that we’re all paying for as well via private payors)! Here’s hoping Trump is serious about cracking down on this outrage (and so many like it) – though I’m not holding my breath…


In the meantime, it’s great to see investors waking up the risks here, as MNK’s stock has tumbled from over $130 two years ago to $44 today. (Alas, this is a good case study re. the perils of shorting: my analysis was exactly right, but I figured this out way too early and got crushed on the way up, first with QCOR and then MNK. Sigh…)


4) Bill Ackman has gotten a lot of bad press for his ill-fated investment in Valeant, but he will live to fight another day (and, I think, rise again, which is why I recently bought shares of Pershing Sq. Holdings). I’ve seen even more concentrated bets go awry – none more so than this one – a good lesson in the perils of concentrated bets:

Vadim Perelman was a young hedge fund hot shot not so long ago, overseeing a portfolio in the hundreds of millions at the age of 31, hopping on corporate boards, and issuing lengthy slide presentations about his favorite stock picks. But then Perelman placed an enormous bet on a single company, Walter Investment Management.

This week Walter Investment Management, a Tampa, Fla., mortgage servicer and nonbank lender, said it lost $529 million last year and recently hired restructuring experts to figure out a way to reduce the company’s crippling debt load. The news was bad for the mortgage servicer’s shareholders, but it was particularly devastating for Perelman.

Walter Investment Management’s stock has tumbled by 59% this week to $1.17, a drop that got significantly worse on Thursday. The company’s stock is down by 95% since it changed hands for more than $23 in June 2015,

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