From the WSJ:
Americans are unhappy with Congress, but William Ackman may be an exception. The manager of the Pershing Square hedge fund has been trying to drum up federal investigations into Herbalife, and Senator Ed Markey has delivered. The Massachusetts Democrat urged federal regulators to investigate Herbalife, and this week Herbalife announced the Federal Trade Commission is investigating the company. Nice help if you can get it.
For about a year Mr. Ackman has held short positions in Herbalife stock estimated at $1 billion. Having made his big bet against the firm, he has tried to persuade other investors that the Los Angeles-based nutritional products company is a "pyramid scheme." Herbalife vehemently denies the charge, and investors like Carl Icahn bought its stock, but this week's news was profitable for Mr. Ackman as Herbalife shares closed at $57.31 on Thursday from more than $69 Wednesday. ...
After Mr. Ackman lobbied Mr. Markey to get involved, the New York Times reports that the Senator sent letters in January to the heads of the Securities and Exchange Commission and the Federal Trade Commission urging investigations of Herbalife. Mr. Markey told the Boston Globe that he didn't know that Mr. Ackman was shorting the stock, although the Senator's office told the Globe that Mr. Markey's staff did know. Apparently the staff did not deem this information relevant to share with the boss as he prepared to intervene for the hedge-fund titan.
I find myself in complete agreement with the Journal's conclusion:
It's hardly unknown for companies to seek political intervention to help business. ... But the phenomenon of stock pickers looking to government to vindicate their investment decisions is of more recent vintage and could catch on. Recall how investor Steve Eisman went to Washington to inveigh against the for-profit college stocks he was shorting.
This may be legal, but it's the kind of crony politics that gives capitalists a bad name. No doubt that's fine with Mr. Markey, who doesn't much like capitalism, but neither he nor Mr. Ackman should lecture anyone about political or business ethics.
It's a point worth remembering the next time some academic tries telling you how wonderful hedge fund interventions are.