It is hard to say which is more surprising: A Wall Street baron hiring top-level Democratic operatives to use the federal government to try and force a $6.7 billion company out of business – and help him collect on a $1 billion bet that the company’s stock will go down. Or the New York Times actually publishing a great story about this toxic blend of liberal politics, government regulation and Wall Street. 

Either way, the story is rocking political and financial circles around the country.

It is no secret that William Ackman and his investment company, Pershing Square, were going after Herbalife. Fourteen months ago, he began his campaign with a $500 million purchase of shares that would go up if the value of the downtown L.A. company’s stock went down. Last year, he even doubled down on his wager. It’s called selling short, and that is not the controversial part. 

The Times pieced together how Ackman hired top-level former aides to Presidents Barack Obama and Bill Clinton as well as Democratic lawmakers who regulate the federal regulators, and how they spread out across the country to convince Democratic lawmakers and liberal interest groups – mostly black and Hispanic – to join in.

The Times began its story with a conventional dinner meeting of hedge fund managers in New York. Ackman had a dog-and-pony show about how the price of Herbalife stock was destined to go down. Fair enough, so far. Then the Times described how it got strange:

“Mr. Ackman told his dinner companions that Rep. Linda T. Sánchez, Democrat of California, had sent a letter to the Federal Trade Commission the previous day calling for an investigation of the company.

“The commission had not yet stamped the letter as received, nor had it been made public. But Mr. Ackman, who had personally lobbied Ms. Sánchez and stood to profit if the company’s stock dropped as a result of the call for an inquiry, already knew what it said, and read from a copy of it that he had on his cellphone.

“When Ms. Sánchez’s office ultimately issued a news release a month later, it was backdated as though it had been made public the day before Mr. Ackman’s dinner talk.”

That kind of thing – releasing inside info to an investor that could materially affect the price of a stock – could land a chief executive in a federal penitentiary. But to Sánchez, it was a constituent service.

Nothing really happened after the Sánchez letter. So they continued their campaign of contacting black and Hispanic organizations and – after some wrangling over the amount of a donation – helped these groups write letters about the foul deeds of Herbalife.

FTC investigation

But when regulators asked if they could produce one person hurt by these so-called bad practices, they could not.

In January of this year, they used a former staffer to land a bigger fish: Massachusetts Sen. Ed Markey. After he sent a letter to the Securities and Exchange Commission and the Federal Trade Commission, the price of Herbalife dove by 14 percent in one day.

Bingo.

Then on March 12, the company announced that the FTC had opened an investigation into it and the stock plunged as much as 17 percent that day.

Up to that point, the Times estimates that Ackman had lost $500 million. But he could profit by hundreds of millions if Herbalife stock continues spiraling down.

Ackman and his army of lobbyists claim they are doing a public service by letting people know about Herbalife’s shortcomings. The billion-dollar gamble is just a sideshow, they say.

As a longtime owner of a wealth management firm that controls more than $100 million in assets, I am not going to tell you this is the only time in the history of the world where people tried to use the press and politicians to make a buck in the stock market.

Or that short-selling is bad.

Three years ago, I put out a call to my clients and others to “sell everything under the sun” when I was adding short sales of solar stocks to my portfolio. And I made several appearances on national TV shows to tell people why – at that time – solar was such a lousy investment.

But hiring politicians – I mean lobbyists – to write letters guaranteed to drive down the price of the stock for no other reason than they are casting aspersions they are hired to cast? That seems more than a bit sketchy.

We should all be grateful to the Times for breaking a business story other than what a bad man Mitt Romney was for making money the old-fashioned way: fixing bad companies. Not driving them into the dirt.

Bill Gunderson is president of Gunderson Capital Management in San Diego.