Friday's ruling that Herbalife effectively is not a Ponzi scheme adds another layer to an already brutal year for hedge fund titan Bill Ackman.
The Pershing Square Capital chief has had a long-standing and very public short position on the dietary supplement company. He already had been sustaining major losses on the bet, but the Federal Trade Commission ruling is the sharpest blow yet. Though the commission found much fault with the way Herbalife operates, it stopped short of the "pyramid scheme" tag at Ackman has alleged in public statements and video presentations.
UPDATE: Despite the huge losses he has sustained on the bet against Herbalife, Ackman remained steadfast Friday after the ruling. He said the commission ruling puts intense pressure on the company to reform its practices, in particular a provision that distributors are only compensated for "profitable retail sales" and not for recruiting or buying products.
"In light of the fact that the FTC found that Herbalife distributors make little or no profit, or even lose money from retailing Herbalife products, there are no longer any meaningful incentives to become or remain an Herbalife distributor," Ackman said in a statement.
"We expect that once Herbalife's business restructuring is fully implemented, these fundamental structural changes will cause the pyramid to collapse as top distributors and others take their downlines elsewhere or otherwise quit the business," he added.
Ackman during a Thursday appearance on CNBC that the short position was costing him in the area of $20 million a year, but he remained confident.
"I think this is going to end up with the government suing Herbalife for being a pyramid scheme, or Herbalife capitulating and agreeing to changes, and in either circumstance the stock's not going to be $60 a share," he said on the brodcast. "While certainly we've been a patient investor here, I think this is the most attractive Herbalife has been from a risk-reward standpoint, and that's why we stayed short," he added.
Indeed, Herbalife will pay $200 million over claims of misrepresentation under terms of the settlement.
Ackman's views on the stock price, however, were at odds with trader reaction after news of the settlement broke. Herbalife shares jumped nearly 11 percent in the first hours of trading, most recently trading around $65.60. Shares are up more than 22 percent over the past six months.
That's particularly bad news for Pershing Square investors. The firm, which manages $12 billion, has gotten pummeled this year, suffering a net loss of 21.1 percent through the first half of the year, according to company documents. Herbalife is the only short of the 12 positions in the fund's portfolio.
Ackman's position is contrary to several of his peers, most notably Carl Ichan. The two had a legendary verbal battle on CNBC in 2013 before reconciling at the "Delivering Alpha" conference (presented by CNBC and Institutional Investor) a year later.
While declining to pile on Ackman specifically, Icahn said the FTC ruling "obviously validates our research and conviction."
"While Bill Ackman and I are on friendly terms, we have agreed to disagree (vehemently) on this subject," Icahn said in a statement to CNBC. "Simply stated, the shorts have been completely wrong on Herbalife."
Though Icahn took the high road, social media was quick to pile on:
Ackman was not available for additional comment.