A SHOCK announcement was just what Herbalife did not need. The alleged insider trading by a now sacked KPMG partner in its securities had a limited direct impact on the three-decade-old multi-level marketing firm – its shares only fell by around one per cent when trading was restarted yesterday.
Yet the withdrawal of audit reports for the last three years brings uncertainty just as some of the biggest names in Wall Street are fighting it out over the stock.
In the bearish corner stands Bill Ackman of Pershing Square Capital. David Einhorn also raised questions on Herbalife in 2012 before closing out his short, but Ackman says that he is committed to seeing the stock going to zero – he claims that this is its true value and that it is a pyramid scheme. The Brussels Commercial Court ruled in 2011 that Herbalife sales in Belgium amounted to an illegal pyramid selling process; a decision which Herbalife is appealing.
On the other side stands not only Herbalife, vigorously defending itself against the charge, but hedge fund billionaire Carl Icahn, playing for the squeeze of the century against Ackman’s $1bn (£0.65bn) short and pursuing a longstanding personal rivalry.
For those following the saga, it is both compelling human drama and a potentially huge corporate story. Could a firm with a $4bn market cap, listed on the New York Stock Exchange, really be a giant pyramid, as Ackman alleges?
Most likely, this wrestling bout between financial titans will end by proving little more than the size of their egos.
Yet it is a strength of the market system that if there is a scandal, this self-interested wrangle will bring it to light far more reliably than any audit ever would.
10 April 2013 2:00am
by Marc Sidwell