How Billionaires Use the Government as a Tool to Destroy Companies They've Bet Against

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http://www.alternet.org/economy/how-billionaires-use-government-tool-destroy-companies-theyve-bet-against



In a free-enterprise system businesses are born and destroyed through the play of ruthless competitive forces, all seeking profits. Bad products and services disappear and new ones take their place. Overall, society supposedly improves as it marches over the carcasses of failed businesses, outmoded technologies and dislocated workers.

But William Ackman, and his hedge fund Pershing Capital, have taken this concept one step further in their attempt to creatively destroy Herbalife, a maker and distributor of nutritional supplements. Rather than create (or invest in) a rival company to compete with Herbalife, Ackman placed a $1 billion bet that the company would crash in value, and then set out to make it so.

Ackman is shorting the stock—that is, betting it will go down in price, like going to the track and betting on the horse to lose. But in Ackman's case he is trying to put Quaaludes in the horse's feed, nails in her hoofs and ride her with a 200-pound jockey.

Ackman has convinced himself that Herbalife operates an illegal pyramid scheme, that the company supposedly makes more money by selling distributorships than it does by selling its products to the public. He claims that the company preys upon minorities who buy these distributorships and the products in the hope of getting rich, but then go bust. He says he will go "to the ends of the Earth" to end this grave injustice. If the Federal Trade Commission rules against Herbalife, the value of the stock would plummet and Ackman would make a great deal of money, perhaps in the billions. (To be fair, Ackman now claims he will give away his "blood money." But he makes no commitments for his hedge fund investors who would gain 80% of the profits.)