William A. Ackman has officially hoisted the white flag in his boisterous and costly five-year campaign against Herbalife, the nutritional food supplement company, which he claimed was an outright fraud.
Mr. Ackman, one of Wall Street’s most outspoken hedge fund managers, disclosed on CNBC on Wednesday that he had quietly unloaded his remaining positions in Herbalife — a bet that at one time had been valued at $1 billion by his Pershing Square Capital Management.
In the annals of Wall Street, investors have lost more on trades. But Mr. Ackman’s bearish bet on Herbalife was a signature event given how much time, effort and money he devoted to making his case — all in the hopes that the federal authorities would take action against Herbalife.
In fact, the Federal Trade Commission did. But its enforcement action against Herbalife in July 2016 was not the death knell that Mr. Ackman had been counting on. The commission’s settlement with Herbalife required the company to pay $200 million in consumer relief, hire an outside monitor and make substantial changes to its business practices, but it let the company continue to operate.
From that point on, it was clear that Mr. Ackman’s wager — he once boasted that Herbalife’s stock was going to zero — would never come to fruition. Yet he stubbornly stayed with it.
Mr. Ackman did not respond to a request for comment.
Early in his campaign, a number of prominent Wall Street investors lined up to take the opposite side of his bearish trade.
His most notable opponent was Carl Icahn, another billionaire investor, who would become Herbalife’s largest shareholder. Mr. Icahn and Mr. Ackman famously squared off during a live CNBC broadcast over the merits of Herbalife. The fight transfixed Wall Street, and at one point Mr. Icahn called Mr. Ackman a “crybaby in the schoolyard.”
The two traders would later publicly embrace and bury the sword. But the televised spectacle began to tarnish Mr. Ackman’s reputation as one of Wall Street’s more successful investors.
Since then, his firm has posted steep losses because of money-losing bets on Herbalife and other stocks, most notably Valeant Pharmaceuticals. His main fund posted losses in each of the past three years.
The end of Mr. Ackman’s Herbalife wager had been in the works for several months. Last fall, he told investors that he had restructured the investment to cap it from incurring further losses. He did that by closing out the hedge fund’s short bets and replacing them with options.
A short is a bet that a stock will fall in price, but it can leave an investor exposed to massive losses if a stock rises sharply. And that was a big problem with Mr. Ackman’s campaign against Herbalife.
The stock plunged to just under $34 a share on Dec. 20, 2012, after Mr. Ackman unveiled his campaign during a three-hour presentation he called “Who Wants to Be a Millionaire?” Over the ensuing years, Herbalife’s stock went up and down, but mostly up.
On Wednesday, shares of Herbalife closed at just over $92. By the judgment of traders, Mr. Ackman’s campaign was an outright failure.