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Class Warfare – Short Sales, Herbalife and Billionaire Justice

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Billionaire hedge fund manager Bill Ackman of Pershing Square Capital Management, L.P. decided to short sell Herbalife Ltd (NYSE: HLF) beginning sometime in December of 2012. Thus began his unholy jihad efforts to murder Herbalife and pillage the corpse. Apparently, Ackman thought it was as simple as shooting fish in a barrel. Ackman began by publicly maligning the multi-level marketing nutrition company as the “best managed pyramid scheme in the history of the world,” and brashly opined its stock price would tumble to zero.

Ackman publicly trumpeted that Herbalife shares would drop to zero value ($0.00) once he was done with them and has bet One Billion dollars ($1,000,000,000.00) on a short sell scheme, banking on profits resulting from the calculated destruction of Herbalife through utilization of a nearly five year defamatory-laden media smear tactic blitz of the most malicious and false specie seen in modern times. Ackman financed a D-Grade self -promoting propaganda feature documentary that is breathtaking in its soaring narcissism and towering navel-gazing lack of self-awareness – rivalled in intent by Leni Riefenstahl’s despicable propaganda films, but devoid of any trace of her technical skill and cinematic excellence. Ackman’s smear campaign has also been coupled with darker public threats of prosecution of Herbalife through criminal process and potentially crippling administrative action arising from a Wealth-is-for-the-Wealthy Democrat U.S. Senator in his pocket that is (or was, as his crony capitalistic efforts now appear likely to presage his exit from The Hill) his eager stalking horse call at the prompting of Ackman for an SEC, FTC and State Attorneys’ Generals investigations.

Do not be duped, these actions and others yet unknown have been motivated by Ackman’s lust for profits – notwithstanding the social justice motives his legions of publicists aver. Ackman’s plan or scheme is simple: to blatantly destroy Herbalife’s stock value, and cash in on the plunder of Herbalife’s dead body.  Ackman’s brutal onslaught attracted the attention of Carl Icahn who countered every act of malice intended to slaughter Herbalife with his own investment infusions intended to nurture the company and its 2.3 Million independent distributor/owners (mostly from working poor and middle class backgrounds). Icahn’s actions are also admittedly for profit as much as to take a stick to his nemesis Ackman’s arrogance and hubris. Nonetheless, Icahn has used his own capital investment in Herbalife to help the people and the company. Conversely, Ackman has used a campaign of lies and deceit along with the public treasury and brazen lobbying by elected officials to finance and further his grave robbing attempts to intentionally destroy Herbalife and its 2.3 million distributor/owners in a blatant display of crony capitalism-fueled class warfare.

Ackman has for years, at least until recently, chortled his self-proclaimed public service intent coupled with boastful promises to donate some of the anticipated sensational profits to charity. The public service boasts are hollow and buffoonish – if public interest were his concern why would he have short sold the stock in anticipation of profit upon completion of his quest? The question is not rhetorical. Regardless, he obviously believes that Herbalife’s distributor owners are far too stupid, as commoners, to understand the business they are in and the risks and rewards. Ackman alone knows better and intended to take a billion dollars as his fee to educate the poor, ignorant Great Unwashed by stripping them of their opportunities, investments and dreams.

As for the charitable pledge, it is also a tawdry canard – the charity is his own personal charity to which he has previously committed contributions such that any Herbalife graverobbing windfall would simply keep the equivalent amount in his bank account. Ackman is a huckster and an elitist selling fear and loathing to the public while attempting to profit on the backs of the American investing and working public that rightfully sees multi-level marketing opportunities as a traditional and legitimate beacon of hope that his silk stocking ilk cannot comprehend. Besides, isn’t it obvious to all that giving money taken from the poor to charity is admirable – or so the Mafia has believed for a century? Ackman’s self-delusion is monumental.

However, nearly five (5) years later, Ackman has failed in his mission to destroy Herbalife. His childish and often petulant strategic onslaught against Herbalife, seemingly masterminded by Wile E. Coyote, has been thwarted and his disastrous losses are a near certainty. Ackman’s use of his Let-Them-Eat-Cake Democratic Senatorial Toadie, thereby taking public property for his personal gain to destroy Herbalife’s stock value, has been a dismal flop, notwithstanding an immediate plummet in price upon the announcement of his Personal Senator’s lobbied SEC investigation. The subsequent FTC investigation, also engineered by Ackman through his Pet Senator– again crony capitalism at its finest, resulted in a settlement payment to the FTC by Herbalife in July of 2016.

Remarkably and instructively, the price of Herbalife shares nonetheless rose an astounding 16% mere days later – much to Ackman’s presumed dismay. His chagrin must be imagined because he and his cronies have gone silent. Ackman has lost his Bozo Jihad and needs to go away with his tail between his legs, except that justice and social order requires him to now be in front of the spear and answer for his class warfare maneuvers.

Ackman’s anticipated losses and the wounds he is likely ruefully licking as you read this are not, however, sufficient punishment alone for Ackman’s aberrant anti-social and lawless behavior that should find him outside the temple of civilized society. He has potentially broken the law. Other short-sale manipulators have crashed on the funeral pyre of public deceit and manipulation that seemingly always lurks in the shadows of most, if not all, securities short-sale schemes. Examination of Ackman’s modus operandi remind less of securities crusader and more of Barry Minkow and his felonious ilk. Barry Minkow is another Herbalife short sale fake stock market savior with a scheme and attack dog tactics remarkably similar to Ackman’s. The fruits of Ackman’s efforts may be equally bitter for him.

Ackman’s scheme unavoidably looks like what it is: either a clear violation of Rule 10b-5 of the Securities and Exchange Commission, 17 CFR 240.10b-5; or a textbook example of common law extortion.

Rule 10b-5 makes it unlawful for “any person” to engage in any scheme to defraud, to omit to state a material fact necessary to make companion statements not misleading, or to undertake any course of business or practice which would operate as a fraud or deceit upon any person in connection with the purchase or sale of any security. Under traditional circumstances, Mr. Ackman had a Rule 10b-5 duty to disclose his game plan to destroy the value of Herbalife shares when he shorted approximately $1 billion of Herbalife stock.

Ackman and Pershing Square are subject to New York Law. Extortion pursuant to New York’s Penal Law § 155.05 includes fear of future economic harm from an announced threat of prosecution or administrative action that is sufficient to establish extortion under New York law.  Extortion does not require evidence of an actual ability to cause the threatened harm or realization of the threat. The act itself is sufficient to establish extortion under New York law, because extortion does not require evidence of an actual ability to cause the threatened harm, only that the person threatened believed that the defendant possessed such an ability and if only for a time.  The proof against Ackman need only establish that the victim, in this case Herbalife and its shareholders, reasonably believed that Ackman had the power to harm them through his torrent of threats of prosecution and blitzkrieg smear attacks on Herbalife. Additionally, proof that Ackman and his cadre of graverobbers would exploit that power to the victim’s detriment and the financial gains that were derived (stolen) from the victims’ lost stock value. That each of these elements is present is obvious.

The not so obvious pertains to the question of whether Ackman will be required to defend himself for his actions against Herbalife, its investors and its 2.3 million distributor owners. Whether Ackman is guilty or innocent of stock manipulation and extortion is remains unknown; however, he inarguably must be required to defend himself as anyone else would under these facts. We are meant to be a nation of equal laws blind to class distinction that demands even a billionaire graverobber that attempts corporate murder be brought to justice.  But, are we?

This question is one that may define the next and possibly final American generation and determine whether our Republic and its social fabric can be maintained intact: “do the laws apply to the wealthy who have engaged in class warfare against the American public?”

The opinions expressed in this commentary are solely those of the author and are not not necessarily either shared or endorsed by iPatriot.com.

Bruce DelValle

Attorney W. Bruce DelValle is a litigator for the constitutional law firm Fein & DelValle, P.L.L.C.

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