Revealing My Identity and Why I’m Fighting Herbalife

My goal when I first started QTR on Seeking Alpha a couple of years ago was to find the truth about public companies, commit to it, and be able to write about finance and “pull the curtain back,” as I often say. And to make enough money for beer.

As I said in one my earliest posts, “The financial world is a dark world that exists on backstabbing, complex vocabularies and secret handshakes. These things all occur under the cloak of secrecy in the secret fraternity that is Wall Street, and if you don’t have even the least bit of education on the fundamentals going in, you’ll never understand the complexities; and your life savings will be systematically bilked from you and will go towards some billionaire’s landscaping bill.”

I continue my learning by reading some of the most renowned contributors, market skeptics and investors of all time. Look at the list of who I follow on Twitter if you want an indication of who I think is worth following/listening to. My only promises to my readers have been that I try and commit to the truth, I realize and admit that I don’t know everything and that I’m going to be wrong, and that generally, like everyone else, I’m just a guy trying to do my best.

In what is likely going to be the most anti-climactic statement of the day, my name is Chris Irons, and I live in Philadelphia. I’ve lived in some nice neighborhoods and some that weren’t exactly tourist traps. Here’s a picture of me in Italy last summer.

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I’ve been investing/trading/learning the markets since I was 18 years old – I’m in my early 30’s now. I never went to school specifically for economics. My undergraduate degree is in English and Business and Technical Writing. My two graduate degrees are in Organizational Leadership (kind of an MBA light) and Hospitality Management. 

That sums up my “formal” education. I learned the basics of economics and managerial finance throughout school and my time working as a manager in restaurants in Philly, but the world of the public markets I’ve learned almost exclusively from experience. Mostly, for the first few years I traded, I lost money. In the process, I also learned a ton about how the market works, how sell side “analysts” work, how the macroeconomic climate worked, how companies are valued, and all the other nuances that come with dealing with the public markets. For a couple years, I worked as an IR manager of a startup company that was constantly under fire for allegations of fraud. This taught me from the inside out what filings were necessary when, how disclosure worked, the importance of truth, and securities lawyers’ involvement in company disclosure.

I like to think that people follow me because they get some analysis mixed with some humor, but mostly – because they feel like they can relate. That’s why when my friends tell me I “curse too much” in my QTR analysis, I jokingly tell them to “(expletive deleted)” which is about the same response I’d give them if we were having a real life conversation. Then, I’d probably buy them a beer.

Warren Buffett I am not.

I come from a working class family: my dad was a mailman, my mother worked at a library. We were the furthest thing from Wall Street insiders. We lived in the suburbs and I realized a great upbringing due to my parents’ hard work over the course of 30+ years. They didn’t make a life for me by trading derivatives, running a public company, or day trading. They did it by working their asses off, every single day, for more than 30+ years. They helped teach me what “real work” is. They’re the people that made it possible for me to extend my education and get out on my own. They’re also drawn right from the sample of people who are directly affected by things they they’re not at fault for, and may or may not fully understand – like the financial crisis of 2008. Everyone, including my family, lost money in 2008. 

This group is the kind of people I want to protect, and the people I write for.  

I have been an Apple/Mac user for my entire life. My first experience with the stock market was when I took the $1700 I made from my high school graduation to my local A.G. Edwards and told a broker I wanted to buy Apple in 2001. Instead of putting it all into Apple, he convinced me to buy Palm, Sun Microsystems, and the Q’s (QQQ – which had just started). Is it any wonder I’ve had a longstanding beef with analysts and “insiders”? 

Through this process I’ve come to love our public market system. I in no way think it’s an evil entity, I think it’s one of the most beautiful, Darwinist things about our financial system and a true tool that can level the playing field for the average investor. But, seeing how much money insiders and others involved in public companies can make, I believe it is a privilege to be a public company. With that privilege comes a commitment of honesty to the market and your shareholders. And I believe capitalism works. I just want everyone, including myself, to understand it. 

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While doing grad school, I worked at a pub in Philadelphia and also worked for Apple for a little while.

In 2010/2011, a small startup company I was invested in personally, JBI, Inc., was pursued by the SEC for misstating some assets while I was a stockholder. The SEC ultimately filed accounting fraud charges against the CEO of the company. I wasn’t happy with how their IR team was communicating with me when I was asking questions about it, so I called the CEO and landed a job as their IR guy in 2012. There, I learned almost anything and everything you could need to know about crisis communication, building a small company, how to defend your very real technology when everyone thinks you’re a fraud, and what real pressure is. Eventually, the company settled with the SEC for a fine and an officer bar for the previous CEO, and we continued to push forward. My commitment, in being a JBI investor, was to learn the truth about their process. Either this company had the world’s leading technology for converting plastic to oil, or they didn’t. After 3 years of diligence (it was my “project” before Herbalife), I concluded that they did and I tried to do everything I could to help them “steady the ship”.

Needless to say, the market thought otherwise, and over the course of the 2 years I worked there the stock went from near $2 to around $0.10, where it trades today (as PTOI). The money I invested throughout 2010-2012 and some of the stock I was paid in during 2012 and onward, became virtually worthless. I left the company in early 2014 when cash became tight, layoffs were made, and I was missing Philadelphia and my family. PTOI is still chugging along, and I have immense respect for their team and current executives. 

I used to hate the people that were skeptical of my last company, now I embrace them. I value the many, many, many skeptics of my last company because they showed me many ways to try and poke holes in public companies that may be obfuscating the truth, which I find very valuable when I’m now doing analysis. I was never nervous about the job I was doing, because I knew I had the truth on my side. I feel the same now about Herbalife.

And yes, I breathed in chemicals for 2 years. Maybe that explains why I’m neurotic. Who knows.

**

The first post I ever wrote as QTR was about GeoInvesting’s take down of Longwei Petroleum. It was due diligence on a level that I hand’t seen before and I was extremely impressed with. LPIH was outed as a total fraud, and the company was halted and delisted.

In 2013, I called GeoInvesting to try and get them up for a tour of what we were doing in Niagara Falls. They passed on it at the time. From an investment standpoint, it was the right move. When I made my way back to Philadelphia in early 2014, I split my time between helping a buddy out at a new bar he had just opened and writing and doing research. When I noticed that GeoInvesting was outside of Philadelphia, I called them up and asked if they needed a writer. I had an hour long conversation with Dan David (co-founder of Geo), the first time we ever spoke, about how our only commitment was to the truth, and how it could be used to keep investors warned about pitfalls in the market that they may or may not know about. China-based U.S. listed companies were a perfect example. We grabbed lunch together one day, realized we had mutual interests, and I’ve been working for them ever since.

Nothing I write as QTR on my Twitter or on my Blog is the opinion of GeoInvesting – it’s my personal stuff. Now, most of my primary ideas and work go to GeoInvesting, who I’d encourage you to follow here and here. This was part of the reason my SA articles fell off in summer of 2014.

The one condition, I told Dan when I had lunch with him, was “I have to be able to keep writing about Herbalife.”

**

In the midst of the last couple years, I came across Herbalife. It was the quintessential situation that I was hoping to shed clarity on for people. Herbalife has existed for 30+ years based almost solely on the fact that people aren’t privy to exactly how the company operates. When then went public, the details were out there – but no one really questioned them. The first time someone asked 3 simple questions about the business model, the stock tanked. Why is that? I think it’s because the company goes after people that do not have the business acumen or the financial sophistication to understand what their odds are at success, and what an MLM business model truly entails. David Einhorn or Bill Ackman, on the other hand, are not “easily fooled”. For me, it was always clear that MLM companies weren’t reasonable ways to conduct business. 

When I was in high school, I clearly remember seeing the infomercials from people like Doran Andry and Shawn Dahl on late at night. It was usually “income at home” style infomercials that came on in between the perverse arsenal of “flipping real estate” infomercials, the other “scam du jour” of the early 2000’s. One thing was obvious, simply from the fact that they were on at midnight on a Wednesday pitching these systems; they’re too good to be true. I remember being bewildered when watching some of the Herbalife ones, because they never actually told you up front what you were signing up for, aside from “an income opportunity.” This is why when you see people like this (go to 2:20) still signing up for “income at home” opportunities, you can see they were surprised to find out it  was Herbalife they were signing up for.  

I remember as a recent college graduate, when I first moved to Philly, my roomate went on a job interview for an “entry level position.” When I asked him how it went, his answer went something like this: “It was weird. He showed up in a Corvette and a really fancy suit to interview me for an entry-level position. He then told me about multi-level marketing. The whole thing had a greasy feel to it.” Needless to say, my friend never went ahead with it after we discussed it.

So, in 2012-2013, I began my research on Herbalife. I had heard of Bill Ackman but didn’t really even know who he was at the time, and I was determined simply to find out whether or not MLM’s could exist as legitimate public companies. I listened to both sides of the argument, I read the case law, I read every document known to man about the company. The conclusion I drew was that while companies like Tupperware likely could exist legitimately, Herbalife seemed to me to simply be a pyramid scheme. So, I started writing, and I haven’t stopped since. I have never, to this day, been paid or compensated by Pershing Square in any way, shape, or form. Pershing and I just happen to be two entities on the same side of an investment thesis. Rather than look at Pershing with contempt, like a lot of people do for one reason or another, I considered it a privilege to have drawn the same conclusion on a company as the best performing fund manager in the U.S.

**

A year or so ago, I found myself watching Harry Markopolos’ testimony on Capitol Hill after the Madoff scandal finally imploded, and I felt the sudden need to further my efforts to raise awareness of this fraud, one that continues to be uncovered. In the course of my work as an analyst/financial writer, I don’t think I have ever come across a more egregious fraud as Herbalife. Why continue writing about it? The lack of exposure of fraud pisses off the country – watch George Ackerman tell the SEC this (read: berate) after Madoff. Even congress don’t completely understand how “analysts” fit into the mold of Wall Street. Here’s a hint: they want the company’s invesment banking business.

Like all pyramid and Ponzi schemes, Herbalife’s Achilles heel is that it can’t go on forever. It’s not a Coca-Cola or a Johnson & Johnson. Recently, we’ve seen Herbalife begin to collapse under its own weight as a company. It has missed guided down earnings on Wall Street for two of the three last quarters after recording 20+ quarters of record results. I believe that soon, the company will have collapsed completely under its own weight. For this to happen before regulators have a chance to pre-empt it and step in would be a terrible embarrassment akin to Madoff for the regulators, and a travesty for those who deserve meaningful restitution from this fraud. My decision making to place this bet was as result of my objective analysis of the company and its practices, not the other way around.

It is the opinion of this analyst that Herbalife needs to be shut down in its entirety in order to prevent future harm. 

In the case of Madoff, Senators were left furiously asking the SEC and others, “Where were the people that were supposed to be the watchdogs for the market?” In some of the greatest frauds in history, stock analysts were part of a group that included auditors, politicians and regulators who dropped the ball. In this particular case I’m taking it upon myself to let the public know how I feel. 

As mostly everyone knows, I am positioned short by owning put contracts that will go up in value if Herbalife’s common stock falls. I have had various hedges on over the last two years and plan on continuing to keep a hedge on. My short “bet” was placed after my research was completed. I’ve maintained my position for over two years now and I rarely trade around it. I’m not at break even yet, simply due to the cost of borrow and rolling over expensive puts. For perspective, if Herbalife were found by the FTC to be a legitimate enterprise, the upside to betting accordingly far exceeds what one could earn if the stock were to fall. Still, I’m on the short side. Additionally, I have also agreed to commit 10% of my personal profits from this investment, if successful, to a Latino advocacy group which represents a sect of individuals who are harmed by these predatory affinity frauds. I am not short Herbalife because Bill Ackman is. What I think some of the longs have missed is that this isn’t about Bill Ackman, it’s about Herbalife.

Regardless, there’s been headlines about those on the short side of the case being investigated for market manipulation. I encourage this, as it will only further lead to the truth. I am an open book and would welcome speaking to any regulator. Some longs, themselves, are being investigated for market manipulation on the long side of the trade. That resolution, of people potentially conspiring to line up against Ackman and squeeze him together without properly disclosing it, could be the actual market manipulation in this case. One look at my Herbalife trade P/L from the time this saga started until now would tell you that I’m not manipulating anything, let alone the stock market. But, as I’ve often said, “Good.” Please tell the regulators to come find me – they know where I live and I have a lot of stuff I want to tell them. I’ve paid for 2 years worth of put premiums not because I’m in this for a quick trade (unlike some longs), but because I believe the company will be brought to justice by the competent people at the FTC, SEC, and U.S. Department of Justice. 

As a matter of fact, one of the days I was feeling like Markopolos I reached out to him on LinkedIn. Surprisingly, he wrote me back. I promised him confidence on what he said about Herbalife, but needless to say I don’t think he’s going to be signing up for a distributorship anytime soon. 

And despite what many people would have you believe, I’m not some malicious person that wants horrible things to happen to everyone associated with Herbalife. From the company standpoint, I know there’s probably lots of good people that work there. I think it’s unfortunate that they may be unknowingly perpetuating a pyramid scheme. From an investor standpoint, I wish it wasn’t a zero sum game, but it is. I just want the executives to be held responsible for running a pyramid scheme, I want the public to be aware of the predatory business model, and I want what I believe in my heart to be justice. 

And I don’t have beef with Herbalife distributors personally. I’ve even made peace offerings to distributors like Rene Porcile, whom I’ve written about, and Carol Curtin, another nice woman who happens to be an Herbalife distributor. My peace offerings look like this:

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 And the responses I’ve got are also surprisingly cordial and classy. I won’t share them as to not infringe on those peoples’ privacy.

People on the other side of the trade, however, whom I’ve reached out to, have been less “receptive to my truce”. I won’t reproduce those e-mails here as to not get too ad hominem. You can use your imagination on who I’m talking about, and what they’ve said. I don’t even think people like Alan Hoffman are inherently bad people, I just think they’re misguided. Even people like Charlie Gasparino, who I initially had a beef with, I have made peace with. This isn’t a fight where I’m trying to take on the world – just Herbalife and its executives. Even when longs try and stick it to me, I have nothing really to offer them but congratulations. In this case, Jesse Felder called an outstanding trade that likely netted him huge profits. How can I hate on that, even if I think he’s wrong in the long-term?

I stand for what I believe in, and I don’t expect everyone to like me. I will not apologize for my analysis of what I believe to be the facts. Again, I want to only argue the facts and truth. That’s why when there’s speculation and I’m wrong, I still try to write about it and admit it.

“You have enemies? Good. That means you’ve stood for something, at some point in your life.” – Winston Churchill

I got into the Herbalife trade as a result of my own due diligence, nothing else. I had heard of him, but I didn’t really even know who Bill Ackman was before this thing started. The first time I ever even spoke to anyone else on the bearish side of this trade was at the July 2014 Nutrition Club presentation, where I introduced myself to a couple of PSQ employees and a couple of well known hedge fund managers. Most people have known who I am for the last year. Whitney Tilson and Kerrisdale’s Sahm Andragi were two of the very, very, very first people I disclosed my identity to this past summer. I owe them thanks for respecting my anonymity. Here I am (at 2:31:50), asking about Venezuela which collapsed shortly thereafter, while watching my Herbalife position on my phone rally 25% against me – what a day. Fear not, though, the bar next door was stocked with some fantastic whiskies. The question I asked at the presentation were the first words I ever spoke to Bill Ackman or anyone at Pershing Square.

Before posting this, there were probably about 100 or so people that knew who I was. A couple of longs just figuring it out and patting themselves on the back for it are, unbeknownst to them, about a year late.

**

I’m a regular guy. I have made huge mistakes, like betting against Adam Feuerstein on Celsion (CLSN), calling Netflix a short at $170, and not starting Rogaine years ago. These won’t be the last mistakes I ever make. When I am wrong, I lose money. When I’m right, I make money. I don’t think short sellers are the bad guys, as I’ve written, I think they’re a valuable part of the market. My goal is to make money going long and short, and to continue learning.

The last big bet I made, on my last company, monetarily I lost. From an experience perspective, however, I consider it a success. With being short Herbalife, I’m either right or wrong. If I’m right, I’ll be happy to see justice served and if I’m wrong, I’ll take my knocks, be man enough to admit it, look to see where I missed it, and I’ll move on to the next thing that gets my wheels turning.

My goal has always been to commit to the facts and the truth, which I welcome debate on. I’m always looking to re-evaluate any position I’m in and I welcome conversation. I won’t spend time on the calls I’ve made that are right, my followers know what they have been . The nice thing about telling the truth is that there’s nothing to “remember.” Because I’m committed to the truth, I didn’t want to be hypocritical and stay anonymous – I wanted to reveal my identity.

I like Philadelphia sports teams, Liverpool FC, finance, pizza, beer, tattoos, running and gambling. I hope my readers see me as I see myself: a common guy, trying to do what’s right. That’s what my goal is, and I don’t plan on stopping anytime soon. Thank you to my readers for the continued support, and to my haters, I even wish you well, too.

Catch you around my northwest Philly block,

Quoth/Chris