WASHINGTON — Senator Edward J. Markey said Monday that his work as a “consumer advocate’’ led him to urge federal regulators to open a fraud investigation of Herbalife and that he was unaware an activist investor who lobbied his office stood to make a profit from his actions.
The investor, William A. Ackman, has made a $1 billion investment in a “short’’ position on Herbalife stock that will pay off if the company’s stock price falls. The New York Times reported on Monday that Ackman had embarked on an unusual effort to push federal regulators and lawmakers, including Markey, to take action against the company.
Ackman has publicly charged that Herbalife, which sells weight management and nutritional supplements, is a pyramid scheme, something the company denies. His financial interest in seeing the company fail was made public more than a year before Markey wrote letters to federal regulators demanding a probe of Herbalife.
But Markey, a Massachusetts Democrat, said in an interview Monday that his staff did not inform him that Ackman stood to benefit financially if Markey took action. Markey’s spokeswoman, Giselle Barry, as well as Ackman himself later confirmed that Markey’s staff was aware Ackman’s company would benefit. Ackman said it was the first thing he told Markey’s staff when he sat down with them for an hour in October.
“The issue itself was handled just as a consumer issue and evaluated as a consumer protection issue right from the beginning of it, right from the entirety of it,” Markey said Monday.
When asked whether his staff should have alerted him, Markey said, “I honestly believe that they were looking at it from a consumer protection perspective.”
Markey wrote letters in January to Herbalife, the Federal Trade Commission, and the Securities and Exchange Commission citing Massachusetts constituents who he said lost their entire life savings as a result of the company. Herbalife’s stock dropped 14 percent the day Markey sent his letters demanding a fraud investigation and has barely moved up since.
Ackman said his financial interest in the issue had deterred other elected officials from scrutinizing Herbalife.
“A lot of people that we met with were wary of getting involved because they viewed it as a Wall Street thing. What I respect about Markey is that he didn’t care that we were involved,” Ackman said. “It appears that he believes there are serious questions here and he wanted to shed sunlight on the problem.”
In a statement posted on its website Monday, Herbalife accused Ackman of orchestrating “an unfounded, relentless and fraudulent public attack on Herbalife’s business model” over a 15-month period.
“Ackman’s unprecedented campaign to destroy Herbalife has now been exposed for what it is,” the statement continued, “a cynical, self-serving attempt to manipulate the market by buying his way into an investigation to cover his own reckless $1 billion dollar bet.”
Ackman’s firm, Pershing Square Capital Management, stood by the company’s efforts.
In his letter to the SEC, Markey requested “that you investigate the company’s business practices yourself to confirm that the company is acting in accordance with federal securities laws.” The Times reported that the letters included points mirroring claims made in documents released months earlier by Ackman’s firm.
The Times reported Monday that Larry Rasky, a Democratic fund-raiser and former Markey staff member, had been hired to lobby on the issue by Pershing. Another Rasky official, Mark Horan, assisted Markey in his Senate campaign last year.
Rasky’s firm is not registered to lobby in Congress on the issue but is registered in the state of Massachusetts on behalf of Pershing. Rasky said neither he nor Horan worked on the issue and that no one in his firm lobbied federal officials.
“There has been absolutely no involvement with anyone here with Markey or his staff,” Rasky said in an interview Monday. “We have been working with community groups to identify victims of the Herbalife scheme and we have absolutely been up front with everyone we’ve talked to about Pershing Square’s profit motive.”
Rasky said his staff had been in contact with Tito Jackson, a Boston city councilor who has also urged an investigation by the FTC.
Barry also said Markey did not discuss the issue with Rasky or his firm.
Markey has not received any direct campaign contributions from Ackman. But The Times reported in January that Ackman donated $32,400 to the Democratic Senatorial Campaign Committee on April 30, the date Markey won a special election primary to replace John F. Kerry in the Senate, and that the committee donated $45,400 to Markey a month later.
Ackman said Monday that he has given donations to both parties’ political committees routinely during the past five years and that he wrote his check to the DSCC before Markey’s primary victory.
Barry said Markey was not aware of those contributions until earlier this year.Noah Bierman can be reached at email@example.com. Follow him on Twitter @noahbierman.