Wall Street's natural mode of dialogue is the relentless, swaggering attack. But even by these standards, the 15-month campaign by the private equity legend Bill Ackman to prove to the markets that Herbalife (the maker of diet shakes and nutritional supplements) is operating a massive pyramid scheme has had the beguiling, manic quality of personal obsession. On Monday, the New York Times published a front-page story accusing Ackman of using his political connections among Democrats and civil rights groups to goad the anti-Herbalife cause onto the political agenda; most seriously, the Times suggested that Ackman knew beforehand when legislators would release market-moving public letters urging regulators to scrutinize the nutrition company. It was the kind of exposé that can destroy even famous men.
As a public-relations counteroffensive, Ackman held a conference call yesterday — not exactly to defend himself (not his style), but to press his case against Herbalife. Ackman is one of the great Wall Street talkers: colloquial and lucid where the norm is sclerotic with jargon; delighted by the details; just supercilious enough. His topic yesterday was Herbalife's marketing practices in China, and Ackman explained how the company's sales representatives made nearly all their money not from selling product but from recruiting lower-level sellers. The presentation featured screen-grabs of internal Herbalife financial spreadsheets and many sketches of Herbalife's marketing structure — each a pyramid — given out by the company's own Chinese representatives at recruiting seminars. There was a joy to Ackman's presentation. You could be forgiven for forgetting that this man's reputation was in rapid and very public collapse, and that his campaign of more than a year to bring down Herbalife had barely budged the company's stock at all. (One writer called Ackman's attack on the company "hilariously inept.") And yet Ackman's zeal has not been diminished. To bring down Herbalife — a company whose profile was probably smaller than his own — would be, Ackman told a reporter this summer, "the greatest accomplishment of my life." This afternoon, Herbalife officials confirmed that the FTC had opened a formal investigation into its trading practices, and trading on the stock was halted. This made Ackman's campaign look, perhaps, a little less futile. But it also elevated the question of what, exactly, is at stake for Ackman in the crusade — of why he went to such extremes to bring down Herbalife at all.
The Times investigation suggested a familiar kind of scandal, in service of this zeal, in which a connected businessman uses his relationship to politics to try to make himself an enormous amount of money. The twist here is — because Ackman believed Herbalife had targeted poor and minority communities in its membership schemes, and because his ties are to Democrats — it was civil rights groups and progressive pols and operatives who did the alleged dirty work. The Times describes a strange political diorama: Ackman prodded Minyon Moore, a Hillary Clinton confidante, who explained the perfidies of Herbalife to a black church group in Los Angeles; Latino community groups with little previous interest in corporate governance flew to Washington, D.C. to stage anti-Herbalife demonstrations to persuade lawmakers to act against the company; letters of complaint were sent to attorneys general under the name of individuals who seemed to know nothing about them; Congresswoman Linda Sanchez and Senator Edward Markey, both staunch progressives, sent letters to regulatory agencies calling for investigations of the company — and, the Times implied, Ackman knew these letters were coming beforehand, which gave him the chance to game the market. (On his conference call, Ackman denied that he had any foreknowledge of the Markey letter and suggested the rest of his lobbying activities were legal and normal.) Ackman's campaign, the former SEC Chairman Harvey Pitt told the Times, looks like "an effort to move the price rather than spread the truth."
Ackman is the kind of Establishment figure who, when he appears on Charlie Rose, Charlie introduces him by saying, "glad to have you back at this table," and who, when he is profiled by Vanity Fair, has his eyes described as "cerulean" (which I think means "blue"). Ackman has sat on the board of dean's advisors at the Harvard Business School. His wife is on the board of Human Rights Watch. He is a major Democratic party contributor. Bloomberg News, in 2010, credited him with steering more than $200 million in Wall Street philanthropy to support Cory Booker's redevelopment of Newark. We've come to expect Wall Street provocateurs to speak in rough outer-borough dialect (think of the brutality done to vowels in Carl Icahn's Far Rockaway mouth), but Ackman is pure elite: son of a New York real estate tycoon, Chappaqua, prep school, Harvard, Jack Donaghy-level swept gray hair. And yet he has built his career on especially blunt and adversarial charges that American executives and boards were operating businesses in ways that ranged from incompetence to fraud: That JC Penney had been "chronically mismanaged," that Burger King had been "mismanaged for a long time," that Herbalife was engaged in illegal and systemic fraud. He is the point, in other words, where the Wall Street Establishment and its pirates become one and the same.
You can sense, here and there, a kind of status anxiety in Ackman — a fear that the piracy will continue to taint him. Short-selling is "still not particularly well accepted as an American way of investing," Ackman lamented to Reuters TV a year ago. And yet this seems to misunderstand what the Establishment now is, and how it works. The stories we tell about finance are still stories of insiders and outsiders, Davids and Goliaths, in which shrewd hedge funds and private equity mavens and short-selling quants are pitched against the back-slapping fogeys of mainstream corporations and (in some cases) the banks. Our sympathies are intuitively with the contrarians against the conventional wisdom, with the provincial kids against the Ivy Leaguers and with the progressives against the conservatives. But a complicated inversion has taken place in American life over the past two decades, in academia and business and now politics, in which the bold outsiders with an idea are the ones who win seats on corporate boards, invitations to Davos, political influence — the contrarians are the establishment. There is quite literally no club that would not have Bill Ackman as a member.
And yet what Ackman seems to be after is greater validation than that. There has been an unexpectedly fervent, ideological strain that has run through Ackman's Herbalife campaign —the insistence that he is not just out to make money for himself and his investors, but that he is defending something, a principle. "I believe [Herbalife] is harming millions of low-income people over the world," Ackman told the conference call yesterday, when asked about how long he intended to pursue his campaign against Herbalife. "As a philanthropic matter I will pursue this to the end of the earth."
A "philanthropic matter" — that's a strange way for Ackman to talk about even part of the motivation for a trade in which his fund has taken a $1 billion stake. And yet it is the same tone Ackman has struck throughout the episode, so frequently that it seems likely to betray something. Perhaps part of the reason for the curious intensity of his campaign against Herbalife is that it means something more to Ackman than simply more money and prominence, that it represents the chance to prove that the pirate Establishment, as chaotic as it is, can be a force for something greater than efficiency — that it can be what the old Establishment aspired to be, a force for social good.