This article describes the efforts of a hedge fund to put a company out of business. The hedge fund manager argues that his intentions are noble. He claims that Herbalife is based upon a pyramid scheme that targets minority groups. The company's growth depends upon continuously recruiting sales people to sell its products. The new sales reps must purchase inventory from the company when they take the job. Most of them fail to earn back their initial investment.
There is nothing unique about the business model employed by Herbalife. There are a number of companies that do the same thing. Some people suspect that hedge fund's manager's motivations may not be very noble. He has placed a billion dollar bet the company's stock price will collapse. His short position on the stock has already cost him millions but he is not the kind of person who loses a bet graciously. The tactics that he has employed to drive the stock price down are ruthless and dishonest.
Herbalife has defended itself by using some of the same tactics used by the hedge fund. It has employed lobbyists with connections in Washington to neutralize the lobbyists hired by the hedge fund. One of the things that we can learn from this article is that we do not have a monolithic business lobby in America. Much of the lobbying that takes place in Washington pits one business lobby against other another business lobby. This is very good for the lobby industry, and it also benefits politicians who have to raise money to fund their election campaigns. It also drives up the cost of running a successful campaign. This feedback loop is part of the problem with electoral system.
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