The Most Dangerous Trade

Chapter 1Ackman: The Activist Grandstander

It had taken William Ackman more than 18 months to get this far—with zero to show for it. Over that time, the founder of Pershing Square Capital Management, with more than $15 billion in assets under management, had been hammering away at Herbalife, what can only be called a marketing machine that used so-called independent distributors to peddle nutrition and weight-loss products through a vast pyramid scheme. There was an enormous amount of money at stake—Ackman, who goes by Bill, had at one point borrowed some 20 percent of Herbalife's stock, worth more than $1 billion, through his brokers and then sold it. His goal: Expose the company as a fraud and repay those borrowed shares for pennies on the dollar—or nothing at all.

That's how short-selling works—and Pershing Square had by now spent more than $50 million in research and fees alone on the effort.

Now, in July 2014, the six-foot-three-inch-tall Ackman was wrapping up an impassioned, polished presentation for the media and investors that laid out the details of how Herbalife entrapped its distributors through a system of so-called “nutrition clubs” that were meant to lure people into the base of the pyramid scheme and goose sales by foisting products on them. In the U.S., the lion's share of distributors were low-income people, typically Hispanic-Americans, but Herbalife was pushing its weight-loss products in countries from India to Zambia.

Ackman singled out the Herbalife CEO. ...