The Run for Calif Governor: Villaraigosa’s Name Still in Play

HERE’S WHAT I KNOW-The rest of 2016 will be consumed with a nail-biting Presidential competition, the possibility of a brokered convention, the first Tuesday in November, and let’s not forget, the race to fill Boxer’s Senate seat. Those of us for whom politics is a favorite spectator sport are watching the brackets fill in for the 2018 Governor’s race to replace Gov. Jerry Brown. 

Numerous media reports point to Villaraigosa as a potential addition to the crowded field of prospects. In February, the former LA mayor ditched a possible Senate run. If Villaraigosa rises to the ranks of governor, he’d be the first Hispanic governor since Romualdo Pacecho held that post. To put things in perspective, Pachecho spent some time mining during the Gold Rush and was likely the only California governor who lassoed a grizzly bear. 

Villaraigosa could face some stiff competition in the cash department. Lt. Gov. Gavin Newson has been filling his campaign chest for over a year. A poll of six hundred Californians considered “likely to vote” in the 2018 election that was conducted for Newsom’s campaign by David Binder Research in late January, placed Newsom -- the only candidate to formally declare -- ahead of the competition by 30 percent. Villaraigosa trailed third at 8 percent, behind Republican San Diego Mayor Kevin Falconer at 20 percent. GOP Fresno Mayor Ashley Swearengin clocked in at 6 percent; former hedge fund manager/environmental activist Tom Stever, a Democrat, had 3 percent; state Treasurer John Chiang and former eBay executive/venture capitalist/former state Controller Steve Westley, both Dems, came in at 2 percent each. Nine percent were undecided. The margin of error was 4 percent. 

The gubernatorial race comes at a time when the state’s economic conditions have been generally on the upswing but the state continues to face many challenges. Millions of Californians are at the poverty level or are holding lower-wage jobs, the state’s infrastructure is crumbling, commuters face congested roads and freeways and the drought is still an issue. Local and state governments continue to be hit with escalating pension and employee healthcare costs. 

California’s gubernatorial race is what’s called a “jungle primary” – only the top two vote-getters make it to the playoffs. The primary is open and voters aren’t bound to select a candidate along party lines, so the independent vote is up for grabs. Getting in early can mean more time to garner support throughout the state. Newsom has a strong base in the Bay Area, but Villaraigosa could potentially lock up the Southland. In order to go the whole way, any candidate needs to extend his or her reach throughout the state. 

So what about Villaraigosa’s record? The former mayor had a number of successes. He beefed up the police department, seeded a mass transit boom, but is sometimes criticized for trying to bite off more than he could chew, such as a failed plan to take over LAUSD.  Despite a stint at UTLA early in his career, he has, at best, a lukewarm relationship with unions. In 2014, the former mayor penned a Wall Street Journal opinion piece questioning the teachers’ unions. Challenges emanating from the 2008 financial crisis sometimes pitted him against municipal unions. And under his watch, the 10,000 member LAPD didn’t get a raise for three years. 

Villaraigosa’s term in office was marred by scandal.  Toward the end of his tenure, his affair with a Telemundo reporter was uncovered, ending his marriage. He later told a crowd at Loyola University that his handling of the breakup with his former wife was his “biggest regret as mayor.” However, this personal scandal is unlikely to be an issue in the upcoming campaign for Governor because Newsom also faced a similar scandal during his San Francisco mayoral term. 

Since leaving office in 2013, Villaraigosa has been focused on private business and consulting, leaving him open to some criticism, especially for his role as an advisor to Herbalife. The supplement and weight-loss company has been under federal scrutiny for an alleged multi-level marketing pyramid scheme. The former mayor has also helped Hillary Clinton raise money and was a co-chair for her 2008 run for President. 

All things aside, the widening number of contenders in the gubernatorial race could be positive for the state of California. And Villaraigosa just might be ready to step up to the competition. 

California’s free-for-all style gubernatorial primary, in which Democrats can vote for Republicans and vice-versa, means candidates must reach out beyond their traditional constituencies. 

It’s important to note that Villaragosa is the only Southern Californian in the mix -- and the only Latino. Should he become governor, he would become the first Latino governor in nearly 150 years. Similarly, Chiang, the son of Taiwanese immigrants, could become the state’s first Asian governor.

 

(Beth Cone Kramer is a successful Los Angeles writer and a columnist for CityWatch.) Edited for CityWatch by Linda Abrams.

The Heavy Cost of Opposing LA Supervisor Candidate Englander

LA COUNTY POLITICS-Opponents of Mitchell Englander (photo above) in the upcoming Fifth District County Supervisor race might want to consider what happened to the last field of candidates who ran against him in 2011. To date, twenty-five percent of those challengers have been prosecuted -- and collectively fined $55,000 -- in Ethics Commission actions presided over by an Englander campaign donor -- namely, Nathan J. Hochman, current member and one time President of the Commission. 

Hochman pitched in $500 to Mr. Englander’s campaign committee in October 2015, during the brief 15-month interval between signing the action against one-time Englander challenger Navral Singh on December 16, 2014 and serving as the hearing officer in the trial against the equally unfortunate Englander challenger Kelley M. Lord -- whose case had the double misfortune of also having Englander-appointee Serena Oberstein on the Commission 

The headline charges against Mr. Singh, according to the Ethics Commission press release, were failing to submit copies of campaign communications and failing to include proper disclaimer language on campaign communications. Mr. Lord’s chief “crime” was accepting a campaign contribution in excess of the $500 per-person limit -- a preposterous charge given that the work was done without Mr. Lord’s permission, by a guy who basically stole money from the Neighborhood Council on which Mr. Lord served, and continues to serve, as an elected member.  

Both enforcement actions ought to be reversed and Mr. Hochman should offer a written explanation of his actions. The conflict of interest policy for members of the Ethics Commission should be explained to include clear directives regarding the need for recusal from enforcement actions. 

 

(Eric Preven is a CityWatch contributor and a Studio City based writer-producer and public advocate for better transparency in local government. He was a candidate in the 2015 election for Los Angeles City Council, 2nd District. Joshua Preven is a teacher who lives in Los Angeles. Views expressed here are those of the authors and do not necessarily reflect the views of CityWatch.) Photo: LA Daily News. Prepped for CityWatch by Linda Abrams.

Reflections on the Wilshire Grand Tragedy

FIRST PERSON--I have been working at the Wilshire Grand Center construction project for a year and a half as a filmmaker trying to capture the daily effort and skill that goes into building our city’s tallest structure. I have approached this three-year project with respect – like one who surfs big waves or climbs our highest mountains – aware of the dangers and humbled by the power and vastness of the environment. I’ve seen many construction workers make the sign of the cross as they arrive in the morning – a gesture of faith and an appeal for safety and guidance. At safety meetings every morning, they are reminded that the main goal is to go home to their families and friends at the end of the day. 

Yesterday, one of those workers – an electrician – fell to his death from the 53rd floor. The state’s occupational safety agency, Cal/OSHA, has yet to determine the incident’s cause. Having walked on that floor – and every other floor up to the top of the 73-story building – I know that every effort is made to keep workers safe. A strict rule stipulates that anyone who is working near the “leading edge” of the building must be tied off with a safety harness that will prevent any fall. I’ve been reminded many times by the ubiquitous safety inspectors to stay away from the edge of the building, orders that I gladly follow. 

When I heard about the young electrician’s death, I was at the hall of the union he belonged to. Members and officials there were stunned, thinking about who he was – trying to find out what happened – and expressing concern for his family. 

I thought of the many workers who I have interviewed at the Wilshire Grand – from every craft, from every part of town, from amazingly diverse backgrounds. I have often visited their homes to fill out their stories, to put together a deeper narrative of how and why they came to their craft – how life and personal choices moved them in a particular direction. 

I called a number of Wilshire Grand workers that I have become friends with to ask what happened – to share concern. They are individuals who have consistently talked about the difficulties of their work and the solidarity they feel for their “brothers and sisters” who work beside them every day. They know that in this dangerous workplace, their lives are dependent upon the good judgment, the watchfulness and the actual love of their workmates. 

Sefi Edery, an ironworker, has described himself and his fellow union members as “warriors,” set apart and elite in their own way. How many of us, after all, could get up at 5 a.m. to work hundreds of feet in the air carrying iron bars all day, smoothing cement or pulling wire through ridged conduits? Sefi added that if somebody falls, there is always someone there to help them up. 

What the dozens of Wilshire Grand workers I have talked to ultimately understand is that all of them – all of us – are vulnerable and dependent beings. As such, we need moral vocabularies and behaviors that acknowledge and sustain that insight. 

The Wilshire Grand site is now temporarily closed out of respect for the man who died. Proud of the excellent safety record that had been achieved there thus far, these deeply saddened workers are now reflecting on the atmosphere that awaits them when they return to their jobs. They will complete this project – as they always do. And they will continue to watch out for each other – looking for the obstacle that their partner doesn’t see, picking up a load that their “brother” or “sister” can’t carry – and knowing that those they have helped will in turn watch out for them.

 

(Kelly Candaele is a Los Angeles writer whose essays have appeared in the New York Times and the Los Angeles Times. He is directing and producing a documentary film on the building of the Wilshire Grand complex. This piece originally appeared at Capital and Main.)  Prepped for CityWatch by Linda Abrams.

LA: Density is Our Destiny

TRANSIT TALK-What do Fig Jam, (event photo above) the so-called Neighborhood Integrity Initiative and Janette Sadik Khan’s new book Streetfight have to do with one another? More than you might imagine. 

Los Angeles is of course a city of competing ideals. And perhaps we’re better for it. How dull life here would be if there was no tension, no civil civic dialogue about urban life in this massive caldron of cultures and lifestyles. 

For all its laid back southern California vibe, Los Angeles is also the home of sharply competing visions of the Promised Land. 

Those differing ideals were very much on display Friday at a panel discussion on the Neighborhood Integrity Initiative at the Westside Urban Forum (WUF).  

Sure, it’s hard to listen without going apoplectic as someone who supports the no-growth Neighborhood Integrity Initiative makes a case for this misguided ballot measure by citing an unsupportable anecdote that his friends are the only residents of the high-end condo at Western and Wilshire who ride the Purple Line subway. Yes, that’s what the panelist, an adjunct instructor at the USC Price School of Public Policy no less, actually said to the dumbfounded crowd. 

Fortunately, there were more intellectually honest experts on the panel including Mark Vallianatos of the Urban and Environmental Policy Institute at Occidental College, Alan Bell, a former Deputy Director of the LA Planning Department and moderator Con Howe of Cityview Los Angeles Fund. For years the Westside Urban Forum has provided a much needed service by bringing important land use topics like the NII to the fore. 

What does Janette Sadik-Khan’s book (written with co-author Seth Solomonow) have to do with all of this? Based on Sadik-Khan’s critical work focusing on making cities more pedestrian and bike friendly, the book is very much a playbook for the future of growing cities like Los Angeles. Take the chapter entitled, Density is Destiny, in which the authors explain how “cities’ geographic compactness, population density, and orientation toward walking and public transportation make them the most efficient places to live in the world.” As LA and other cities grow and become more urban, the work of Sadik-Khan and like-minded urbanists are helping ensure that our growth is sensible – featuring amenities like public plazas, protected bike lanes, bus rapid transit and streets that are safer for pedestrians and drivers alike. 

And Fig Jam, the street happening on North Figueroa in Highland Park? The free one day event featured a temporary bike lane and a parklet designed to improve the street by drawing attention to the area’s rich past, demonstrating what will be when the bike lane and parklet are made permanent. 

Delicious. But also an illustration of Sadik-Khan’s and a growing chorus of smart local urban planners’ and advocates’ vision in action. Fig Jam was the work of the Los Angeles Department of Transportation (LADOT), L.A. Great Streets LA, the Los Angeles County Bicycle Coalition (LACBC)Los Angeles Walks and other local partners.

Street by street, we are building a city whose thoroughfares are safer, greener and more pleasant for the growing numbers who choose to live here. Think Vision Zero, LA’s road safety policy that promotes smart behaviors and roadway design that anticipates mistakes so that collisions do not result in severe injury or death. Other U.S. cities that have adopted this eminently sensible goal include New York, San Francisco, Seattle, Portland, Chicago, San Jose and San Diego. 

It’s a movement. And it’s why LA has embraced smart density with public plazas, pedestrian and bike amenities along transit and put the single driver car, the freeway and sprawl in the rear view mirror. Or, as Hilary Norton of Fixing Angelenos Stuck in Traffic (FAST) put it in her question to the panel at WUF, the timing of the Neighborhood Integrity Initiative seems particularly poor -- coming at a time when we are enhancing our ability to build sensible transit-oriented communities with the construction of new rail lines that can efficiently move lots of people. 

Respect. Sensible urban growth built with public plazas, pedestrian and bike amenities along transit corridors is something we should all unite behind. 

What else? Please go to the polls and vote against the Neighborhood Integrity Initiative next March. And let’s make safe streets and transit-oriented density our destiny.

 

(Joel Epstein is a senior advisor to companies, law firms, foundations and public initiatives on communications strategy, corporate social responsibility (CSR), recruiting and outreach. He is a contributor to CityWatch and can be contacted at [email protected].)  Edited for CityWatch by Linda Abrams.

Jonathan Gold … Poet Laureate of LA?

‘CITY OF GOLD’: THE WAY I SAW IT--Jonathan Gold makes the short list of raconteurs of the City of Angels. So many novelists, reporters, and screenwriters have painted a portrait of our city, from Raymond Chandler to F. Scott Fitzgerald, Joan Didion to Dominick Dunne and Bret Easton Ellis. But, none perhaps has been painting a landscape of our city’s magnificent diversity better than Jonathan Gold. 

A new documentary, City of Gold, brings us along as the famed food critic (and oh, so much more) explores neighborhoods from Koreatown to Alhambra. Gold has an encyclopedic knowledge of strip mall ethnic spots we might refer to as a “hole in the wall.” At one point the film, culinary master tasker Evan Kleiman describes her first Gold-approved experience, “You drive into a mini-mall, OK, really?” 

City of Gold features cameos from a number of foodie luminaries, including Nancy Silverton and Roy Choi, as well as immigrants whom Gold refers to as entry level entrepreneurs who are grateful for the role Gold has played in their success, extending their reach beyond the neighborhood to the rest of us. 

For Gold, food is culture and culture is food, the thread that holds all of our precious neighborhoods together in such a breathtaking way. Though a Gold appearance elicits stage fright from Ludo Lefevbre, the master chef who helms Trois Mec, yes, the same strip mall mecca where a ticket might be as hard to come by as front row seats to U2, his typical domain is the countless ethnic eateries and food trucks throughout the city. 

Gold introduced us to street food before Anthony Bourdain and Guy De Fieri were doing it. He says he honed his love of L.A.’s neighborhood food scene during a proofreading job fresh out of college. Bored, he decided to sample as many restaurants as he could along the long stretch of Pico. 

By 1986, he began penning his Counter Intelligence column for LA Weekly, which he moved to the LA Times from 1990-1996 before heading to New York as the restaurant critic for Gourmet. Gold headed back home in 2001 where he continued to write for Gourmet while reviving his Counter Intelligence Column at LA Weekly. He returned to the Times in 2012. Jonathan Gold’s 101 Best Restaurants in the Times Magazine section is the dog-eared bible of just about every LA foodie. 

Reading a Gold article is luscious, his words carefully crafted to tell the story of each restaurant and those who share their love with food. It’s no surprise, really, that he is the first food critic to have won the Pulitzer Prize in 2008 and was a finalist again in 2011. 

He is meticulous in his reviews, sometimes returning to a restaurant a dozen or more times to make sure he gets it right. Roy Choi credits Gold’s writing for “helping me figure out what we wanted to do.” His well-honed palate can tear apart a dish to its elements. Jitlada’s Jazz Singsanong says, “No one in the whole wide world knows what I put in my (Thai) coffee, not even my family, but he knows.” 

The magic Gold spins does much more than introduce us to restaurants that might be out of our comfort zone, although that alone would make him a master. He’s like a culinary Midas, helping turn intimate ethnocentric eateries into financial successes. Bricia Lopez of Guelguetza shares, “One day my dad walked in and says, ‘Where did all these white people come from?’” She and her siblings now run the restaurant, which hit the LA foodie map after Gold introduced the restaurant and raised the profile of Oaxaca cuisine. The pride Lopez expresses that Oaxaca cuisine is now appreciated by others outside the region is palpable. 

The film also tells the story of Genet Agonafer of Little Ethiopia’s Meals by Genet who embodies the American Dream. She raised her son by putting in long hours as a waitress. When her son finished medical school, he opened the restaurant for her. Post 9/11, she claims Gold’s review saved her restaurant from a slump that would have shuttered her business. 

As Angelenos, we are so fortunate to have Gold as our urban treasure. He captures the soul of our sprawling metropolis, from Koreatown through the Westside, from Little Ethiopia and Tehrangeles to Alhambra and just about every strip mall and taco truck in between. 

City of Gold is currently playing at the ArcLight Hollywood and Laemmle Town Center 5, Encino. 

 

(Beth Cone Kramer is a successful Los Angeles writer and a columnist for CityWatch.)

-cw

Here’s Why LA Traffic Stinks ... and What We Must Do To Fix It!

GETTING THERE FROM HERE-This is hardly a shocker, but according to a study by INRIX, Inc. the Los Angeles metro area has the worst congestion in the nation, and the second-worst congestion in the world (LINK: ).  Certainly, the "good reason" for more traffic of an improving economy (which is improving with lousy part-time jobs and not good career jobs, but improving, nevertheless) has a major role to play here, but we also have the "bad reasons" for traffic that must be addressed--and we have the ability to fix both of them.

The bad reasons are two-fold, and they are best addressed with the analogy of tying Transportation and Planning together as a form of "Mobility Budget", with Transportation funding being the equivalent of "income", and with Planning being the equivalent of "spending".

To the apologists at City Hall who defend unsustainable, environmentally-unfriendly overdevelopment for whatever political or economic reasons they can muster, this analogy is just silly, and with condescending contempt they'll want to pat us all on the head and deny the rest of us what is blatantly obvious:

WE DON'T HAVE ENOUGH MOBILITY INCOME (more transportation funding for projects and operations), AND EVEN IF WE GET A RAISE, WE SPEND MORE THAN WE CAN EVER TAKE IN.

(In other words, we overdevelop, and develop in neighborhoods that have never, and will never, accommodate such overdevelopment, faster than our transportation improvements can keep up with).

So we need to get more income, and we need to spend better: 

  • Our best bet to achieve more income is the upcoming "Measure R-2" initiative this November.  In short, it extends the previous Measure R (half-cent sales tax passed in 2008) another 20 years, and creates yet another half-cent sales tax for 40 years.

Arguably, this is the "second half" of what should have been been the original Measure R passed in 2008.  It's not hard to conclude that former LA City Councilmember Bill Rosendahl was right in suggesting Measure R should have been a whole cent sales tax that was passed in 2008.

Unless, of course, you think that it's acceptable and A-OK for the rail and freeway fixes funded by Measure R to be completed in 2036 or later. 

Is this talk of Measure R and R-2 expensive?  YES, IT IS.

But it's paid by everyone, and it's the price we pay for having blown off transportation funding for decades since the 1970's.

Furthermore, we are getting more matching federal funding in ways L.A. has almost never seen--our "self-help" efforts have caught Washington's eyes and rewarded us grants and low-interest loans in almost unheard-of levels.

And if it turns out that the November elections will be between Trump and Clinton (as it appears to be), we will have not one but both major presidential candidates being as pro-transportation/infrastructure as any we've seen in decades.

On a final note, the need for operations and maintenance of both car-based and rail/bus-based transportation are as vital as any new construction, and Measure R-2 addresses that in earnest.

Yes, Metro is listening, and while we should be continue to hold Metro's feet to the fire it does appear that they are not tone-deaf.

  • But we need to control our spending--particularly in the City of Los Angeles, where being tone-deaf has been a way of life for the last two decades.

Unlike other cities, which respect their citizenry and taxpayers, the City of LA is run and influenced (controlled, really) by very wealthy and connected developers who don't give a rip about the citizens playing by the rules, and are supported by a host of "useful idiots" that dismiss discussion of transportation/planning balances as "NIMBY-talk".

Where else but Los Angeles would we see developers allowed to fund and influence the City Council to encourage and force LA City Planning to slam through prima facie bad development, allow them to get away with underfunding parking and other mitigation measures, and call it "progressive" and "transit-friendly"?

Where else but Los Angeles would we have transit advocates and bicycling advocates proclaim that parking is bad, but look the other way when no equivalent financial requirements for developers to pay for bus stop improvements, rail improvements, bicycle and pedestrian accommodations, etc. are appropriately funded?

Where else but Los Angeles would we have Planning and other City agencies ignore legally-mandated Community Plan updates to emphasize more density on major thoroughfares and preserve neighborhoods, and call it "progressive"?

Next spring, the City will have the chance to elect a better City Council, while also creating a Neighborhood Integrity Initiative, or NII, to demand that legally-required Planning efforts be taken seriously.

If the NII passes, Community Plans will be expedited, developers will be required to fund EIR's but not control who writes them and what they say, and an emphasis on legal and affordable housing will be allowed to start playing a role in the City of the Angels.

Unlike the City Hall developer/true believer types, who have all sorts of time and money to buy and influence City Councilmembers, the NII is a grassroots- and citizen-funded effort, with its primary focus on having the City of LA finally obey its civic, environmental, and legal requirements to its citizenry.

And for those wishing to donate to or be part of this historic effort, please go to 2preservela.org/ 

It shouldn't be too hard for anyone to figure out that our "Mobility Budget" needs more income and better spending habits. 

But for those happy and content to pull the wool over our eyes, and who are used to doing just that for decades, it's up to LA City and County residents to make sure that both Vision and Common Sense prevail.

Either that, or be prepared to hand these Mobility "income" and "spending" endeavors to the next generation or three.

 

(Ken Alpern is a Westside Village Zone Director and Board member of the Mar Vista Community Council (MVCC), previously co-chaired its Planning and Outreach Committees, and currently is Co-Chair of its MVCC Transportation/Infrastructure Committee.  He is co-chair of the CD11Transportation Advisory Committee and chairs the nonprofit Transit Coalition, and can be reached at  [email protected].   He also co-chairs the grassroots Friends of the Green Line at www.fogl.us. The views expressed in this article are solely those of Mr. Alpern.)

-cw

Herbalife Gets the Last Laugh: Valeant Pharmaceuticals on the Brink!

HEALTH POLITICS--It is the stuff of comic book battles: A billionaire’s massive bets against sunny LA’s nutritional supplement powerhouse Herbalife and on frigid Canada’s booming Valeant Pharmaceuticals. 

It has been a rough few years for the LA Live-based Herbalife. There were investigations by the Federal Trade Commission, Securities and Exchange Commission and Department of Justice. 

Listening devices, according to Fox Business Network, were found in its headquarters. It was sued by distributors. And activist hedge fund billionaire Bill Ackman bankrolled a documentary attempting to prove Herbalife was a Ponzi scheme. He wagered a billion dollars as well as his reputation to “short” it, (i.e. bet against its stock price, which dipped below $30 per share in January 2015) predicting that it would soon become worthless. 

Funny, odd really, how things can change in a year. 

Other fund investors, including Carl Icahn and George Soros, bet the other way for a while or longer. While investigations uncovered some accounting irregularities, Herbalife was cleared of Ackman’s primary accusation. The distributor lawsuit was dismissed by U.S. District Judge Dale Fischer. As of last Friday, its stock hit a 52-week high of $62, with each upward tick costing Ackman and his clients millions of dollars.

That alone would constitute a great victory for Herbalife, slaying its bullying nemesis. But the story gets much better (or worse) from there, depending on your perspective. 

Ackman’s concentrated approach to investing, to oversimplify things, is contrary to diversification. The Harvard MBA makes enormous high-risk/reward investments in just a few companies and industries. In recent years, his New York-based Pershing Square Capital, delivered bountiful returns for his clients that were so gaudy, other hedgies mirrored many of his investments.

As they say in infomercials, “but wait, there’s more!” 

Ackman accumulated a gigantic stake in Wall Street darling Valeant Pharmaceuticals which, instead of focusing on research and development, grew by acquiring competitors (although it failed in its bid to buy Allergan), jacking up prices, slashing expenses, and saving on taxes by relocating to Canada.

As recently as last August, Valeant sold for nearly $264 per share, with Ackman holding 17 million shares, soon to own much more, but due more to avarice than competence.

In September, Valeant’s price dropped to $170 due in part to Congressional inquiries about price gouging in the Big Pharma world. It was also due to its relationship with a dubious drug distributor named Philidor Rx Services, which, according to influential short-seller Citron Research, helped Valeant inflate its earnings claims with a shell-game-like network of companies.

Valeant plunged to below the $100 range by the end October when Citron doubled-down and referred to Valeant as a “pharmaceutical Enron” and Tweeted  “$VRX has a better chance of going to 0 than $HLF EVER will. Citron to update full story on Monday. Dirtier than anyone has reported!!” But Ackman laughed, proclaiming Valeant was significantly underpriced, investing even further with derivatives and equity that brought his total to 19 million shares, becoming its second largest shareholder. 

Ackman stated on an early November conference call that Valeant was “largely a victim of fear and panic,” explaining that he didn’t sell at its August high because while the price may reflect the value of drugs that it owned, it didn’t reflect the value of those it would continue to acquire. “The biggest regret I have is that we’re not in a position to buy more.” 

Famous last words. 

By December, Valeant jumped on the news that Walgreens would replace Philidor as its distributor, a short-term financial hit that would soon lead (one would presume) to greater transparency.  

Less than a month later, Valeant’s CEO Michael Pearson went on medical leave with what was described as severe pneumonia. Ackman trimmed some of his Valeant holdings for year-end tax purposes, but remained its second-largest owner. 

In January, the largest shareholder, Sequoia Holdings, Ltd, was sued by its shareholders over its oversized investment in Valeant, and for deviating from sound investment principles. Viking Global Equities, another hedge giant, was also dragged down because it kept buying Valeant, as Ackman did, as its price continually sunk. 

As they would all soon experience, mimicking one another’s investments could cause an avalanche and further erode value if panic sets in. 

Just a month ago, Valeant’s interim CEO Howard Schiller acknowledged a $58 million accounting error that would be corrected and result in a more favorable forecast, saying, “We have made mistakes in the past…Our focus today is on executing our business plan and rebuilding trust.” 

But ultimately, the corporate world is one of show and tell. Last week, when Valeant management, including the recently returned Pearson (who insisted there “are no further shoes left to drop”) talked of a delayed earnings report and that its preliminary findings and forecast were (far) worse than previously anticipated, panic indeed set in. 

When the stock market closed last Monday, Valeant was at $69.04 per share but immediately fell off the cliff on Tuesday, closing at $33.51, a loss of more than 50% of its remaining value in a single day. Ackman and his clients, who are now its largest hedge owner with 30.71 million shares, lost more than $1 billion on Tuesday alone, now approaching a total $3 billion loss. 

Valeant, $30 billion in acquisition debt and at risk of default, ended the week at $26.98. Ackman dumped other holdings because Pershing’s liquidity was now in question. Standard & Poor’s warned of a downgrade because Pershing Square lost money on 11 of 12 investments since Oct. 27, and its own stock price dropped to $12.55 from a 52-week high of $30.44. 

Yesterday, Herbalife continued upward having doubled in value since its January 2015 low. Valeant swung wildly on the news that Pearson was out, Schiller refused to leave and Ackman joined its Board, priced at just 10% of what it was worth last August. $80 billion of shareholder value, a huge chunk of which previously belonged to Ackman and his clients, evaporated. 

If a company can experience schadenfreude, Herbalife laughs mightily today.

 

(Daniel Guss, MBA, is a writer who lives in Los Angeles and blogs on humane issues.)  Edited for CityWatch by Linda Abrams.

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