In the dispute between hedge fund managers Daniel Loeb (Third Point) and William Ackman (Pershing) over Herbalife (Mr. Ackman is reportedly short $1 billion, Mr. Loeb reportedly long somewhere in the neighborhood of $400 million) I don't have a position. I'm not long or short Herbalife and I haven't looked at the company closely enough to form an opinion.
What I do find interesting, however, is the news today, via a Dow Jones dispatch sourced to a anonymous "person close to the probe," that enforcement officials in the New York office of the Securities and Exchange Commission have "opened an inquiry" into Herbalife.
If it's accurate, it's a potential replay of the story told in the book Confidence Game of how Mr. Ackman used the press, stock analysts, and the government to beat down the price of Farmer Mac and of MBIA. It's one thing to short a stock you think is overpriced and hope that the market will come around to your point of view. It's another thing to try to trigger government action against a company. The mere news of the investigation may drive the price down enough for a short-seller to profit on the news and go away before the inquiry eventually clears the company being investigated (albeit after bleeding the company in legal fees and reputation).
If we are going to have anonymous leaks of SEC inquiries, then at least the articles should have to say whether the investigations were triggered by anyone shorting the stock and trying to use the power of the state to advance their investment position.