The regulator is reviewing whether investors may have engaged in
market manipulation or failed to properly disclose that they were
working as a group when they lined up against billionaire investor
William Ackman's short bet against the company, said the person, who
is familiar with the investigation put not permitted to discuss it
A spokesman for the SEC was not immediately available to comment. An
official at Herbalife also declined to comment.
The story was first reported by the New York Times.
Ackman publicly announced in December 2012 that his $13.6 billion
Pershing Square Capital Management fund had wagered $1 billion short
bet, alleging that Herbalife was running a pyramid scheme and that
its stock price would eventually drop to zero.
The SEC, the Federal Trade Commission (FTC), several state
prosecutors and the Federal Bureau of Investigation (FBI) are
looking into these allegations.
A spokeswoman for Pershing Square did not immediately respond to a
request for comment.
Herbalife has steadfastly denied running a business where members
earn more for recruiting other members into the scheme than for
selling its products to retail customers.
But the SEC is now also looking to find information on which hedge
fund managers attended a so-called ideas dinner last year and what
was said about Herbalife, shortly before a group of funds took long
positions in the company. No one has been accused of any wrongdoing.
A short squeeze is a trading scenario that occurs from time to time
in heavily shorted stocks, when bearish traders are forced to buy
shares to avoid big losses, something that ends up pushing the stock
[to top of second column]
Herbalife's stock price shot up 138 percent last year when prominent
fund managers, including George Soros' family office, Carl Icahn and
Daniel Loeb's Third Point, took the other side of Ackman's bet.
Icahn predicted early in 2013 that Ackman would get caught in the
"mother of all short squeezes."
Although they remain on opposite sides of the Herbalife trade and
have had testy relations in the past, the men, two of Wall Street's
most widely followed activists, forged a truce last week during a
telephone call, agreeing to disagree on this matter.
This year Herbalife's stock price has fallen 24 percent and Ackman's
fund has gained roughly 20 percent this year, three investors said
(Reporting by Svea Herbst-Bayliss; editing by Matt Driskill)
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