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The Morning Brief: Big Ups and Downs for Ackman’s Pershing Square

Wednesday was a schizophrenic day for William Ackman’s Pershing Square Capital Management. First, the activist hedge fund manager suffered a setback when shares of Fannie Mae plunged more than 12 percent and Freddie Mac plummeted nearly 17 percent following a published report that indicated Congress is moving to shut down the two mortgage companies. The New York–based hedge fund, which was up more than 12 percent through February in large part thanks to these two stocks, has suffered nearly a 40 percent loss on each of the two investments in the past two days alone. But midway through the day, trading in the shares of Herbalife, in which he famously (or infamously) has a major short position, were halted following Herbalife’s announcement that the Federal Trade Commission launched an investigation of the company.

In response, Herbalife issued the following statement: “Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace and will cooperate fully with the FTC. We are confident that Herbalife is in compliance with all applicable laws and regulations. Herbalife is a financially strong and successful company, having created meaningful value for shareholders, significant opportunities for distributors and positively impacted the lives and health of its consumers for over 34 years.”

The FTC probe came one day after Ackman made a presentation outlining why the multi-level marketer of nutrition supplements is breaking Chinese law. Shares of Herbalife fell more than 7 percent on Wednesday and are now down 23 percent for the year.

Shares of General Motors are also rocking the hedge fund world, dropping for the third straight day following reports that it is recalling several car models after covering up defects over several years that led to 12 deaths. The stock is now off more than 7 percent in three days. This is a big deal given that at year-end, 75 hedge funds counted GM’s stock among their top ten holdings, more than any other stock, according to Goldman Sachs.

Kang Gao, a former analyst at Two Sigma Investments, was indicted for allegedly stealing confidential data from the $18 billion, quantitatively focused hedge fund firm, according to Bloomberg BusinessWeek. Gao, who pleaded not guilty at his arraignment, is the latest of a string of former employees of hedge funds and other financial firms charged by District Attorney Cyrus Vance Jr.’s office for stealing their firm’s software. Last year three employees of Netherlands-based Flow Traders were charged with allegedly stealing its electronic trading software. Several years ago, Sergey Aleynikov, a former programmer at Goldman Sachs, was actually convicted of charges that he stole software code from his former employer. An appeals court subsequently overturned his conviction. However, six months later he was once again charged with the same misconduct.

Paul Singer’s New York–based Elliott Associates boosted its stake in Juniper Networks by 5.5 million shares, to 7.4 percent of the total outstanding. In a regulatory filing, Elliott said it “remains in active dialogue” with Juniper and believes its stock is “significantly undervalued.”

Barry Rosenstein’s Jana Partners disclosed it sold two million shares of activist investment Outerwall for $68 apiece on March 6, reducing its stake to 8.4 percent. In a regulatory filing, Jana said it is “highly supportive of the recent steps” taken by the company’s board and management, including the “improved focus on capital allocation and managing costs and its enhanced commitment to returning capital to shareholders.”

Steve Cohen’s SAC Capital Advisors, which recently converted to a family office and will soon change its name to Point72 Asset Management, disclosed a 5.6 percent passive stake in Momenta Pharmaceuticals, which describes itself as being involved in “complex pharmaceutical products.”

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