Herbalife Plunges 13% After Ackman Shorts It and Calls it Pyramid Scheme
Hedge fund manager Bill Ackman is short Herbalife Ltd. (NYSE:HLF) and its news of a short the shares were halted briefly after a sudden double-digit drop. Ackman sent a letter to ValueWalk mentioning a rare short earlier this year but not naming the company he shorted. In Ackman’s letter, he said he had “a Patriotic short bet” and that “the country will be better off when the company goes bust.” Today we learn that that short was Herbalife Ltd. (NYSE:HLF).
Hedge fund manager Bill Ackman was expected to release his short thesis on Herbalife tomorrow, but as soon as was leaked today on a CNBC report, shares of Herbalife Ltd. (NYSE:HLF) dropped as much as 13 percent before flattening out. A CNBC anchor said a source revealed that Ackman shorted the nutrition company, and he considered it the best short thesis he’s “ever seen.” The sudden double-digit drop after Ackman’s short was released caused trading on the stock to halt briefly.
Ackman reportedly has been researching Herbalife for about a year, and CNBC reported that he believes the company is a “pyramid scheme.” We should learn more at tomorrow’s press conference when Ackman will release his entire short thesis. Ackman is known typically for being a long-only investor, so the fact that he has a short is likely what made investors turn their heads and drop their shares.
Herbalife has had problems this year already thanks to another hedge fund manager—David Einhorn. Einhorn showed up at a press conference about the nutrition company. Einhorn’s questions at that press conference centered around the company’s accounting and reporting practices.