Banks, Icahn Beat Claims by Herbalife Short-Seller
In a stinging rebuke for short-seller and legal activist Daniel Ravicher, a judge has dismissed claims that billionaire Carl Icahn and three major banks propped up an alleged pyramid scheme at the nutritional supplements company Herbalife Ltd.
In rulings issued on Tuesday, U.S. District Judge Louis Stanton in Manhattan dismissed Ravicher's twin lawsuits claiming that Icahn and the banks—Bank of America Corp, JPMorgan Chase & Co., and Wells Fargo & Co.—aided and abetted fraud on the part of Herbalife. "The complaint is dismissed because the defendants' actions (even if proved) are so remote from Ravicher's alleged injury as to demonstrate the implausibility of Ravicher's calm," Stanton wrote.
Ravicher is primarily known for his patent law work, which includes heading the Public Patent Foundation and teaching patent law at the Benjamin N. Cardozo School of Law. Ravicher is also an outspoken investor and equities trader. He is one of the many short-sellers who bet against Herbalife, arguing that it's pyramid scheme headed for inevitable collapse. Herbalife's most well-known critic is hedge fund manager William Ackman, who bet $1 billion on its collapse.
Icahn, who is very publicly feuding with Ackman, amassed a 16 percent stake in Herbalife and has defended the company. BofA, Wells Fargo, and JPMorgan have extended credit to Herbalife. Herbalife's stock price surged in 2013, and Ackman reportedly lost $700 million. Ravicher alleges that he spent $75,000 on so-called put options that are now worthless.
Ravicher brought his lawsuits pro se in March 2013. He called Herbalife "one of the largest frauds in history" and accused Icahn and the banks of aiding and abetting that fraud.
Stanton dismissed the cases on the grounds that Ravicher failed to show that his purchase of the put options imposed a duty on the banks and Icahn not to assist Herbalife. "This is not only a counterintuitive proposition, it violates a principle ("violent non fit injuria") that one who knowingly and voluntarily risks danger cannot recover from the resulting injury," Stanton wrote.
JPMorgan was represented by Gary Kubek and Ashley Fisher of Debevoise & Plimpton. Scott Musoff and Paul Lockwood of Skadden, Arps, Slate, Meagher & Flom represented BofA. Eric Seiler and Andrew Goldwater of Friedman Kaplan Seiler & Adelman represented Wells Fargo. Solo practitioners Robert Viducich and Herbert Beigel jointly represented Icahn.