Herbalife's (HLF) Fate Continues to Be Dominated by Outside Forces
The resignation came amid a scandal at the accounting firm. KPMG stated it had concluded it was not independent because of alleged insider trading in Herbalife's securities by one of KPMG’s former partners who, until April 5, 2013, was the KPMG engagement partner on Herbalife's audit. KPMG advised Herbalife it resigned solely due to the impairment of KPMG's independence resulting from its now former partner's alleged unlawful activities and not for any reason related to Herbalife's financial statements, its accounting practices, the integrity of Herbalife's management or for any other reason.
Allegedly, the KPMG partner that was fired after passing inside information to a third party that traded on the information. Immediately, attention turned to hedge fund manager's Bill Ackman and Carl Icahn, who have been battling on both sides of the trade. However, CNBC reported that neither was involved in the insider trading.
Bill Ackman for his part has called the company a pyramid scheme and said it will eventually be worth zero. Carl Icahn, on the other hand, sees great value in the stock and owns 14 percent of the common shares with an agreement to raise his stake to 25 percent. Icahn also has two of his representatives nominated to the Herbalife board.
During Herbalife's extended trading halt, speculation was swirling around Wall Street about what the halt was related to. One rumor said Carl Icahn was mounting a tender offer for the entire company. Another rumor said the FTC was launching a full-fledged investigation. Both these proved inaccurate, although they illustrate the status of Herbalife's stock as a trading vehicle more than a fundamental-based investment.
In addition to the KPMG auditor resignation at Herbalife, the firm also resigned as auditor of SKECHERS USA, Inc. (NYSE: SKX) today related to the same issue. SKECHERS USA stock was also halted for trading ahead of the news release.
Today's auditor resignation news is just the latest in a string of wild events for the company. As the hedge fund battle wages these type of events will only likely continue. Average investors have been warned to stay on the sidelines, while traders with the acumen to play the swings have already made a mint.
Shares of Herbalife are down 0.8 percent to $38.08 in mid-day trade.