HLF refuted by stating that it was not an illegal pyramid scheme and plans to give a presentation in its defense on its scheduled analyst day, January 10, 2013. The question is how much can HLF shares gain on the doubts of Ackman’s claims? Shares of HLF may continue to rise as the company prepares to defend itself against Ackman’s acqusations. HLF CEO, Michael Johnson, has called Ackman.s allegations “bogus”. HLF has hired the financial advisor Moelis & Co. and the law firm Boise Schiller to help defend the company. Taking such steps to defend the company may attract more support from investors who, as a result, have become more confident that the company is not an illegal pyramid scheme. Many investors bet against Ackman after he announced his large short position because they believed that the large bets against HLF would act as a catalyst for a larger rebound when the stock bounced back up. Ackman would also have to buy back shares he bet against, which could cause the stock to rise even higher. Activist investor Robert Chapman took a 35% position in response to Ackman’s bear raid. Chapman believes that the FTC will not take any action against HLF and, as a result, the company’s shares will not fall to critical levels. Chapman stated, “Without the FTC taking injunctive actions against HLF, Ackman’s crusade towards ’zero’ is doomed.” Hedge fund managers Robert Chapman of Chapman Capital and John Hempton of Bronte Capital both feel that HLF is running a legitimate business. The support of Chapman and Hempton, along with the lack of action taken by the FTC, may cause HLF shares to continue to rise amidst the short squeeze.
Author: Tyler Sciortino
Contact for questions or inquiries at tsciortino312@aol.com