Dan Morain

Scott Eells / Bloomberg

William Ackman, CEO of Pershing Square Capital Management LP, has brought his battle with Herbalife to Sacramento. Ackman started deriding Herbalife in 2012, when he bet $1 billion that Herbalife’s stock would tank.

Dan Morain: Hedge fund billionaire William Ackman is here to help the little people

Published: Sunday, Aug. 17, 2014 - 12:00 am

In a Capitol where contentious lobbying battles are de rigueur, the $14 billion hedge fund that goes by the name Pershing Square Capital Management has picked a most unusual fight.

Pershing Square hired the firm headed by former Speaker Fabian Núñez and filed a lobbying statement with the California Secretary of State in which it disclosed one goal: “ Educating state legislature on issues relating to enforcement of consumer protection laws and securities regulations relating to pyramid schemes.”

For that, Pershing Square reported paying $156,847 in the first six months of the year to Mercury Public Affairs, including $126,847 in the second quarter, though that’s only part of its cost of doing business here. Núñez is a rainmaker, not a lobbyist, and need not disclose his billings.

The fight is over, what else, money.

William A. Ackman is the New York billionaire who controls Pershing Square and has used his position to buy into J.C. Penney, a private prison operator, the fine firm that distills Jim Beam and Makers Mark, and many others.

More recently, the master of the universe is helping a Canadian firm, Valeant, seize control of the Orange County pharmaceutical firm, Allergan, which is known for producing Botox and breast implants.

Allergan answered Ackman’s unwelcome advances earlier this month by suing and, sadly, is laying off 1,500 people and closing facilities in Carlsbad and Santa Barbara in a defensive move to cut expenses. Thanks, Bill.

The focus of Ackman’s effort in Sacramento is Herbalife International, which has a Cayman Island address but keeps corporate offices in Los Angeles.

Herbalife is a purveyor of vitamins and potions that supposedly help people lose weight, and probably run faster and jump higher. The company is a multilevel marketer, meaning people buy its products and take cuts when friends and neighbors buy them, and who get their friends and neighbors to buy, and so on.

Ackman calls Herbalife a pyramid scheme that preys on uneducated people, especially Latinos.

Like so many hedge fund billionaires, Ackman cares deeply about working stiffs from south of the border. In 2009 and 2010, Pershing Square was the largest stock owner of Corrections Corporation of America, a prison company that incarcerates undocumented immigrants on behalf of the federal government.

Not coincidentally, Ackman started deriding Herbalife in 2012, when he bet $1 billion that Herbalife’s stock would tank. Pershing Square investors will score big if the stock slides. It hasn’t collapsed yet, but not for lack of Ackman’s effort.

Ackman says he has deployed “an army” to investigate Herbalife, and spent $50 million on the attack. Herbalife Chief Financial Officer John G. DeSimone told me Herbalife has spent $40 million fending off the attack.

The war has spread from Wall Street to Washington, where Ackman persuaded Rep. Loretta Sanchez, an Orange County Democrat, and Sen. Ed Markey, D-Mass., to sign letters urging the Federal Trade Commission to investigate.

Ackman, a frequent campaign donor, gave $32,200 to the Democratic Senatorial Campaign Committee on March 20, a few weeks after the FTC sent Markey a letter acknowledging receipt of his letter.

Lately, the battle has spread to our very own K Street, where ever-vigilant consultants and lobbyists stand ready to take on causes for a price.

Exactly what Ackman is getting from Mercury isn’t clear. Its lobbying troops have sought audiences with legislators seeking to persuade them to enlist in the cause of ripping the life from Herbalife.

When I asked for the letter they’ve been circulating, and the names of any legislators who have signed on, Mercury’s usually affable lobbying crew fell silent. Núñez didn’t call back. Neither did Ackman, for that matter.

I reached out to three likely contacts: incoming Senate President Pro Tem Kevin de León, Assembly Appropriations Committee Chairman Mike Gatto and Assemblyman Henry Perea, a Fresno Democrat who is among the leaders of the moderate caucus.

An aide to de León said the senator would have no part of Ackman’s jihad.

“I’m not getting in the middle of it,” Perea said.

“We shouldn’t be picking sides,” Gatto said. He also said, “Wow,” when I mentioned that Ackman spent $120,000 in three months “educating state legislature on issues relating to enforcement of consumer protection laws and securities regulations relating to pyramid schemes.”

Herbalife does have a past. The California attorney general sued the company in 1985, accusing it of engaging in an “endless chain” to market its products. Herbalife settled in 1986. Ackman wants Attorney General Kamala Harris to reopen the case. Harris wants no part of it.

Ackman called the press and investors to an event last month in New York, promising to deliver proof of Herbalife’s fraudulent ways. It turned into a mind-numbing 31/2-hour lecture, with evidence that was obvious to Ackman but too dull for mere mortals to endure.

Two hours into his self-indulgent talk, Ackman referred to Harris: “We have approached the California AG. The California AG is one of the AGs that has not met with us, which I think is really unfortunate.”

Herbalife’s stock shot up the following day.

Unlike Ackman, Herbalife is not new to the ways of Sacramento. Herbalife was one of Arnold Schwarzenegger’s top donors, giving his campaigns no less than $275,000.

As Ackman has former Speaker Núñez, so Herbalife has Antonio Villaraigosa, a former speaker and a former Los Angeles mayor. Herbalife countered Mercury’s effort last month by retaining KP Public Affairs, perennially one of the top-billing lobby firms in town.

KP’s Greg Hayes, formerly an aide to de León, and veteran Capitol lobbyist William Rutland shepherded several Herbalife dealers through the Capitol last week so they could tell legislators and staffers about the virtues of the Herbalife way of life.

KP’s team included Gerard Petrella, formerly of New York Sen. Charles Schumer’s staff, and now of the New York-Washington firm SKDKnickerbocker, which leads Herbalife’s counterattack. Kickerbocker modestly says on its website that there is “no company that better understands the intersection of press, politics and policy.”

Herbalife spent almost $1.3 million lobbying in Washington last year, and $1.16 million so far in 2014. KP doesn’t come cheap, though Herbalife has not yet disclosed what it’s paying for KP’s services.

Ackman has been quoted as saying he won’t take any “blood money” if he succeeds in driving Herbalife’s stock down. Presumably, Pershing Square’s investors would have no qualms.

Maybe Ackman is right. Perhaps Herbalife corporate executives take from the poor and give to themselves. That’d be a first. But Ackman is hardly the ideal messenger. He’s in it for the money, as are the consultants and lobbyists who have found new highfliers with money to spend.


Follow Dan Morain on Twitter @danielmorain.

Read more articles by Dan Morain



Dan Morain, editorial page editor

Dan Morain

Dan Morain, editorial page editor, has been a columnist at The Sacramento Bee since 2010. As a news reporter, he covered the California Supreme Court when Rose Bird was chief justice, the Legislature when Willie Brown was speaker and the Governor's Office during Gray Davis' tenure. He spent 27 years at the Los Angeles Times, where his final assignment was to be part of the team that covered the 2008 presidential campaign. He and his wife, Claudia Morain, have three children, each of whom attended public schools and California's public universities.

Email: dmorain@sacbee.com
Phone: 916-321-1907
Twitter: @DanielMorain

Sacramento Bee Job listing powered by Careerbuilder.com
Quick Job Search
Sacramento Bee Jobs »
Buy
Used Cars
Dealer and private-party ads
Make:

Model:

Price Range:
to
Search within:
miles of ZIP

Advanced Search | 1982 & Older

TODAY'S CIRCULARS