We thought we would just circle back to Wednesday's Valeant Pharmaceuticals hearing in the US Senate to pull out a very important, and candid, quote from billionaire investor and board member, Bill Ackman.

It tells you two things, how close the massive former Wall Street darling — which has now come under scrutiny for dramatically hiking the prices of life-saving drugs — came to the brink of destruction, and how active Ackman has been in it.

In an unusually harsh line of questioning, Sen. Bob Casey (D-PA), who has been involved with Valeant in some way shape or form since 2014, pointed out that Ackman said that drug pricing was a "serious issue."

However that wasn't enough for the Senator. He continued saying: "Can you point to anything in your testimony here that points to social responsibility?"

Ackman, again, went back to his written testimony, which lacked the specifics Casey wanted.

"The first thing I've been doing is trying to make sure this company doesn't go bankrupt," said Ackman, adding that the company expected to file its annual report, which was due back in March, by Friday and had already done the work of replacing CEO Michael Pearson with incoming CEO Joe Papa.

Casey was still not satisfied. "I've heard of no policy ... in regards to pricing that says, 'It shall be the policy of this company to not do this.'"

Ackman said that he would "have that in weeks. Watch what we can do."

"Yeah, it's horrible. It's wrong."

We should note that Sen. Casey's pointed questions drew surprise from his colleagues. He's usually pretty chill.

But this is hardly a chill situation. Valeant has seen its stock fall almost 70% since last October, when government scrutiny over its acquisition heavy business model and pricing practices combined with accusations of malfeasance from a short seller to drag the stock down.

Ackman first teamed up with the company in 2014 in order to help it with its failed bid to acquire Allergan Pharmaceuticals. He became one of Valeant's major shareholders in early 2015.

Over and over again, politicians were astonished by Ackman's admissions that he didn't realize that Valeant would jack up the prices of the drugs it acquired through M&A so high.

"One of the things with due diligence in this industry is that it's really hard to find out prices for drugs," Ackman said after stuttering a bit during Senator Claire McCaskill's (D-MO) line of questioning.

That doesn't mean Ackman is repudiating Valeant's old acquisition-based, low R&D spending growth model though. In his written testimony submitted to the Senate record, he had this to say about it:

We believe that a drug company can do as much or more for innovation in pharma by acquiring other drug companies and licensing drugs than by developing drugs internally. Much of Valeant's product portfolio has been built through acquisition where Valeant was the high bidder for smaller innovative companies and their products. As a result of these acquisitions, the selling company shareholders earned an attractive and in some cases spectacular return on their investment from the nearly $40 billion that Valeant has invested in acquisitions.

He didn't say that out loud during his testimony, though. Wonder why.

SEE ALSO: The new Valeant CEO's pay package is putting the company in serious danger

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After months of delays, a Senate hearing, and a precipitous stock fall, Valeant Pharmaceuticals finally filed its annual 10-K report to the Securities and Exchange Commission on Friday morning.

The document has been delayed multiple times as the company reviewed financial documents related to a specialty pharmacy, Philidor, associated with the company.

In its report, the company disclosed risk factors related to its accounting practices and new sales arrangements as well as to a previously undisclosed investigation conducted by the state of North Carolina and a document subpoena from the New Jersey State Bureau of Securities relating to the company's former relationship with Philidor.

Once a Wall Street darling, Valeant has seen its stock price fall almost 70% since October following the revelation of the existence of Philidor, accusations of malfeasance from a short seller, and government scrutiny over the company's drug-pricing practices.

Prominent hedge funds, including Bill Ackman's Pershing Square, were all pulled down by the tailspin. After a ton of drama, Ackman now sits on Valeant's board, and CEO Michael Pearson, with whom Ackman once had a close relationship, is on the way out.

If the company had not filed its annual report by Friday, it would be in violation of its covenants with bondholders, risking default on its debt pile of over $30 billion.

In addition to drawing the ire of the US Senate, the filing disclosed, the company is undergoing investigations in four states. Those investigations are:

• North Carolina: The state's Department of Justice has opened an investigation into the company related to the company's pricing practices and patient-assistant programs covering numerous drugs that Valeant offers.
• New Jersey: According to the filing, Valeant received a document subpoena from the state's Bureau of Securities on April 20 asking about the company's accounting services and relationship with Philidor.
• Massachusetts: The US attorney's office in the state is investigating the Philidor relationship, relationships with other specialty pharmacies, and patient-assistance programs.
• New York: The US attorney's office in the Southern District is also investigating the Philidor relationship, relationships with other specialty pharmacies, and patient-assistance programs.

According to the 10-K, the relationship with Philidor caused Valeant to add $58 million in revenues and $33 million in profit during fiscal year 2014 that did not exist. Additionally, the company misstated financials in the first quarter of 2015, which reduces revenue by $21 million but actually increases profits by $24 million.

Additionally, Valeant's ad hoc committee found "material weaknesses" in the financial reporting of the company, citing the culture created by executives. From the 10-K:

These material weaknesses relate to the tone at the top of the organization and the accounting and disclosure for non-standard revenue transactions particularly at or near quarter ends. The improper conduct of the Company's former Chief Financial Officer and former Corporate Controller, which resulted in the provision of incorrect information to the ARC and the Company's independent registered public accounting firm, contributed to the misstatement of financial results. In addition, as part of this assessment of internal control over financial reporting, the Company has determined that the tone at the top of the organization, with its performance-based environment, in which challenging targets were set and achieving those targets was a key performance expectation, may have been a contributing factor resulting in the Company’s improper revenue recognition and the conduct described above.

The company had already said the CFO, Howard Schiller, was to blame for the misstatements. Schiller was later asked to step down from the board.

Valeant originally created the ad hoc committee in October after the Philidor scandal came to light. The committee delayed the filing on March 21, saying there was substantial misreporting in the company's financials.

The committee announced it had completed its review on April 5.

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Valeant Pharmaceuticals' outgoing CEO Michael Pearson made $143.1 million in 2015, according to Dow Jones.

It was the year the international giant was brought to its knees.

In October accusations of malfeasance from a short seller combined with government scrutiny over Valeant's drug pricing practices to drag its stock down almost 70%.

It was announced that Pearson would step down from the company earlier this month, after it was forced to change its business model, shut down a previously undisclosed internal pharmacy called Philidor, and filed its annual report over a month late, risking default on its $30 billion debt load.

On Wednesday, Pearson, the company's former CFO and billionaire hedge fund investor and board member Bill Ackman testified before Congress, answering for hiking the prices of a number of critical drugs to exhorbitant levels.

Since then the company has also announced that longstanding board members will step down.

New CEO Joe Papa starts on Monday.

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Activist investor Bill Ackman says "of course" he regrets investing in Valeant, the former stock market darling that has been hit with SEC investigations, Senate investigations, and a precipitous decline in its stock price.

"There's been a lot of brain damage in the last five weeks working with the board," Ackman said Monday in an interview with CNBC's Scott Wapner.

Ackman joined Valeant's board in March as Valeant's CEO, Mike Pearson, announced his departure from the firm.

Ackman was also asked Monday whether he regretted not selling his shares in Valeant rather than getting even further involved with the company by joining its board.

"Any price would have been better" than Valeant's current price of about $31, he responded.

Now, he said, he plans to help fix the company and incite a "meaningful" turnaround.

Valeant's stock has plunged about 86% in the past year and almost 70% since October.

At the annual Berkshire Hathaway shareholder meeting over the weekend, Warren Buffett and Charlie Munger called Valeant a "Wall Street scheme," enormously flawed, and "a sewer."

In response to Buffett's and Munger's comments, Ackman told CNBC it was wrong to "indict Valeant on the actions of a few people" and "you don't call Valeant a 'sewer' because the company made a mistake."

Among other things, Valeant has been accused of price gouging — that is, buying drug companies and raising the prices on their products. Ackman, Pearson, and Valeant's former CFO and interim CEO, Howard Schiller, on Wednesday testified before the US Senate about those accusations.

Asked about that, Ackman told CNBC: "I think it's wrong to buy a drug and mark the price up 5X."

Valeant released its 10-K report last week after multiple delays. It revealed that Valeant misstated financials in the first quarter of 2015, which reduces revenue by $21 million but increases profits by $24 million.

It also disclosed the company was undergoing investigations in North Carolina, New Jersey, Massachusetts, and New York.

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Bill Ackman probably did not have a happy end to his work week.

Two of his biggest trades — Herbalife and Valeant Pharmaceuticals — headed in the opposite directions of his positions on Friday.

Herbalife, a long-time Ackman short, ended the day up exactly 9% at $63.57 a share while Valeant was down 13.4% at $29.86 a share.

Herbalife

Shares of Herbalife soared to their highest level in a year after the company hinted at a possible resolution to its case with the Federal Trade Commission.

Herbalife CEO Michael Johnson said that the investigation by the FTC was close to ending and estimated possible financial hits to the company.

"We have updated our disclosures to report that while there are a number of open issues, those discussions have progressed to an advanced stage, and the range of outcomes now include litigation or settlement," Johnson said in the company's quarterly earnings call.

"We also announced that if a settlement is reached with the FTC, it would likely include injunctive and other relates — as well as a monetary payment with our best estimate of that payment being $200 million," he continued.

The nutritional-supplement company has been under investigation for some time now after concerns were raised that it was operating a pyramid scheme. The company's best-known detractor is hedge fund billionaire Ackman, whose Pershing Square fund has a short position on Herbalife.

Ackman accused the company of using a pyramid structure to prey on low-income people, and he was featured in a documentary on the company.

Valeant

Despite taking it on the chin for months now, Ackman has recently deepened his commitment to the troubled pharmaceutical business with a seat on the board of directors.

For his trouble, Ackman has had to endure a grilling from the US Senate, a stock price collapse of 88%, and barbs from Warren Buffett and Charlie Munger.

Shares again tumbled after the company announced that it would form a committee to evaluate how the firm determines drug prices. One of the problems over the past year has been Valeant's practice of purchasing a drug and raising the price.

And so Ackman got punished on both of his most well-known trades on Friday. Here's a chart that is sure to make the hedge funder cringe:

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The Senate has published a bunch of documents pertaining to Valeant, and it is a gold mine of info.

We're running through the 818-page document and will be pulling out some of the highlights.

First up, here is an email from Bill Ackman to Charlie Munger, Warren Buffett's right-hand man, sent April 11 last year.

Ackman had earlier emailed Buffett's assistant, Debbie Bosanek. This all came after Munger said "Valeant is like ITT and Harold Geneen come back to life; only the guy is worse this time."

Ackman's email making a case for Valeant is copied below. It seems his efforts were unsuccessful. Munger later said that Valeant's pricing strategy was "deeply immoral" and that Valeant was "a sewer."

Charlie,

Warren gave me your email and suggested I contact you directly concerning Valeant and Mike Pearson. I write to address the statement you recently made: "Valeant is like ITT and Harold Geneen come back to life; only the guy is worse this time." Valeant was involved last year in a takeover battle with Allergan, an LA-based company, and there was a lot of misinformation disseminated by Allergan about Valeant. Perhaps that is the source of your misinformation.

My goal with this email is to inspire you to meet with Pearson so you can learn more about him and Valeant. I think you have the facts wrong and would benefit by spending an hour with Mike. At a minimum, it seems fair that you would give Mike an opportunity to respond to your concerns as you have criticized him publicly without having met him, and your remarks have been widely circulated.

Valeant shares a lot of similarity to Berkshire in its decentralization, its approach to capital allocation, and its shareholder orientation. Pearson's management approach is similar to 3G's in the company's extremely cost-disciplined and rational approach to operations. While Valeant has made a large number of acquisitions of varying size in an extremely strategic and disciplined fashion since Pearson has been CEO, nearly all have been purchased for cash. Valeant is not a roll up which has used a high-value currency to buy lower-multiple unrelated businesses. In fact, Valeant stock has been and continues to remain perennially undervalued, and Pearson has been extremely reluctant to issue equity (in fact, the company repurchased a substantial amount of stock in the first few years of his tenure).

I would rather you not take my word, but have an opportunity to form your own opinion by meeting Pearson. Others I believe you respect think highly of Mike and Valeant. I introduced Mike to Jorge Paolo Lehmann at Jorge's request, and shortly after the meeting, he purchased a substantial stake in Valeant. Valeant's largest shareholder is Ruane Cunniff, who have owned Valeant for years. Valeant displaced Berkshire as Ruane's largest investment in recent years. My firm, Pershing Square, is Valeant's third-largest shareholder. Shareholders have earned more than a 30-fold return (including reinvestment of dividends) in the less than five years that Pearson has been CEO of the company. While short-term performance is not evidence of long-term value creation, I believe that if you were to study the facts you would conclude that Valeant has created real long-term economic value while simultaneously becoming one of the most productive (in new drug development) large pharmaceutical companies in the world.

Mike is not seeking an investment from you. Rather, he simply would like the opportunity to address the reputational damage your remarks have caused.

Please let me know if you would be willing to meet Mike. We would be delighted to come see you at the place and time of your convenience.

Sincerely, Bill

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Activist hedge fund manager Bill Ackman has some thoughts on what Valeant should do next.

He recently urged the former CEO of Valeant to go public with plans to IPO part of its subsidiary, Bausch & Lomb, and late last year suggested selling its dermatology business.

His comments were made in an email to then-CEO Mike Pearson, which the Senate published in an 818-page document.

Ackman is an investor in Valeant, the drugmaker and former Wall Street darling that's been plagued with SEC investigations, Senate probes, and a precipitous decline in its stock price. He joined its board on March 21.

On March 3 he sent an email to Valeant's then-CEO suggesting the company begin a preliminary review of selling a 20% or less stake in B&L and disclose that on an upcoming earnings call.

"I believe that the announcement that you are considering such a transaction would be extremely well-received by shareholders as it would present a potential positive catalyst for debt paydown and value recognition in 2016 giving investors a reason to own the stock now," Ackman wrote.

"It would also take some of the discussion on the call from the 10-K and Philidor to something positive and forward looking."

He added that analysts would immediately start modeling B&L's value in anticipation of a deal, and would update their reports to reflect that.

Here's Ackman's argument in favor of doing the IPO:

He raised the possibility again at an investment conference a week or so later.

He said in April though that there were no plans to sell B&L, and the company has not discussed the possibility of an IPO.

Last November, Ackman suggested Pearson consider selling Valeant's dermatology business in a separate series of emails. He also suggested hiring Goldman Sachs to work on such a deal.

"[Y]ou would want to do this quietly so in the event that you didn't like price or terms you could walk away without risk of a visible failure," Ackman wrote on November 3, 2015.

Pearson responded: "Interesting idea. Let us think about it. We are contemplating ideas like this."

Business Insider's Linette Lopez in March argued that Ackman would likely look to break Valeant up, having supported earlier plans to build it up.

His emails to Pearson seem to confirm that.

SEE ALSO: Here's the email Bill Ackman sent to Charlie Munger to complain about his Valeant comments

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The US Senate has released 818 pages of Valeant-related information connected to the investigation into the pharmaceutical company's business practices.

Along with a variety of emails and documents, the dump includes a number of messages between Valeant leadership, including former CEO Mike Pearson, and Bill Ackman, hedge fund billionaire and CEO of Pershing Square.

Ackman is a huge investor in the troubled pharmaceutical company and, based on the emails, in constant communication with management. Ackman joined the board on March 21.

After suffering a huge stock-price drop because of concerns over the company's practice of hiking drug prices, the company faced accusations of shady accounting and possible fraud.

Valeant's response, in Ackman's eyes, was lacking.

"I don't think you are handling this correctly and the company is at risk of getting into a death spiral as a result," Ackman wrote in an email at 1:44 a.m. to Pearson and then CFO Howard Schiller on October 27, 2015.

In an email at 6:31 a.m. on the same day, Ackman was agitated about a New York Times story by Joe Nocera that compared Valeant to Enron (emphasis added):

As things stand, the torpedoes are in the water and the sharks are circling. They will kill the company. Valeant has become toxic.

Doctors will stop prescribing your products. You will lose complete access to the credit markets. Your credit line will suddenly become unavailable. Regulators around the world will start investigating and competing to find problems with every element of your business. And when you have 10 state troopers following you for hours they will give you tickets and probably arrest you regardless of your innocence.

You are getting very poor advice from your lawyers and your PR advisors. I am sure they advised you to have a scripted call and limit questions. The only people that need scripts and limited questions are crooks. Joe Nocera is right. You look like Enron.

An October meltdown

The emails were sent just a few days after the company's relationship with Philidor was disclosed on October 19 by the company in its quarterly earnings call.

Two days later, on October 21, short seller Andrew Left of Citron Research called the firm the "pharmaceutical Enron" and sent the stock tanking.

On that day, Ackman emailed Valeant leadership to suggest a different tactic in handling Left's report.

"If something like this happens again you should call the NYSE and have them halt the stock until you can respond to the critic with a press release," wrote Ackman at 6:50 p.m.

The company had responded with a statement the same day, but waited five days to fully respond to Left's report in a conference call. Ackman appeared to be getting impatient with the delays.

"Every minute that you wait before sending out a press release, another shareholder capitulates on Valeant and does not come back," wrote Ackman on October 22 at 1:44 p.m.

Pearson then responded to Ackman, assuring the Pershing Square CEO that the press release was coming. At 5:57 p.m., Ackman emailed Pearson again, saying simply: "Still don't have it."

As of October 25, Ackman appeared to believe that the issues with Valeant were mostly because of public-relations failings, but hoped that the presentation would clear those problems up.

"We are very comfortable with the company and the character and honesty of the team," wrote Ackman in a long email making suggestions for the presentation at 9:56 p.m. on October 25. "I am sure the same is true for your other shareholders."

Just two days later, Ackman sent the "death spiral" and "Enron" emails.

Ackman later clarified his comments, stating that he had confidence in Pearson as CEO on October 29. He said that it wasn't Pearson's management of the business that drew his ire, but rather his communication abilities. Ackman wrote at 3:54 p.m. (emphasis added):

I just want you to know that I am totally supportive of you as CEO of Valeant. I am only disappointed that you have not yet been willing to do an open line q&a with all of your shareholders, and as a result, certain important questions remain unanswered. I just want to make sure you don't confuse my disagreement with you about a conference call with my confidence in you as CEO.

Just the beginning

Between the market open on October 19, when the company disclosed the Philidor relationship, and market close on October 27, after Ackman's strongly worded emails, the stock fell from $169.80 a share to $109.54, a 35% drop.

Valeant's stock would then go on to fall even further as the scandal played out. Since the Philidor disclosure, shares have tumbled a total of 89%, opening trading on Monday at $30.89 a share.

The company has had to delay and totally redo its financial reporting. Pearson has been removed as CEO. On April 27, 2016, Ackman, Schiller, and Pearson were called in front of the Senate to testify regarding Valeant's business. The same committee released the documents on Friday.

SEE ALSO: Here's the email Bill Ackman sent to Charlie Munger to complain about his Valeant comments

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William Doyle is leaving Pershing Square.

Pershing just posted a letter to shareholders running through the fund's investments, revealing that Doyle would be leaving.

Doyle, who attended Harvard Business School with Pershing founder Bill Ackman, played a key role in the fund's investment in Valeant.

He was involved in introducing Ackman to Michael Pearson, the then CEO of Valeant, according to The New York Times. Doyle knew Pearson socially.

It was at that point that Ackman and Pearson started working on a plan to have Valeant buy Allergan, an effort that was eventually thwarted. Pershing later bought in to Valeant.

That investment has proven disastrous. Pershing's position in Valeant fell 16.2% in the first three months of 2015, adding to a sharp decline through 2015. The company has a new CEO, a new look board, and is under investigation in four states. 

The Pershing letter on Wednesday said:

Bill Doyle originally joined Pershing Square on a part-time basis as a Senior Advisor in September 2013. At that time he was still actively involved with several of his venture portfolio companies, most notably as Chairman of Novocure, a privately held cancer therapy company that treats Glioblastoma, a cancer of the brain. In October 2014, Bill became an official member of the investment team. A year later, on October 2, 2015, Novocure completed its public offering. Bill has recently assumed the Executive Chairman role at Novocure. The demands of overseeing Novocure and managing its relationship with its shareholders and other stakeholders have made it infeasible for Bill to continue as a member of the investment team. As a result, Bill will be leaving Pershing Square Capital Management and, in addition to Novocure, will be working part-time at Table Management, an entity which oversees private investments for my family.

Pershing said in late April that Doyle would leave the board of Zoetis, an animal-healthcare company and a Pershing investment. His term expires on Thursday. Pershing cut its stake in Zoetis earlier this week.

The departure of Doyle, who worked at Johnson & Johnson and his own healthcare venture-capital firm before joining Pershing, follows that of another Ackman lieutenant: Paul Hilal.

Ackman announced in January that Hilal, a partner, would leave the activist hedge fund to launch his own venture.

Business Insider reported earlier this week on some of the emails between Ackman, Pearson, and others that were released by the US Senate.

On Monday, Valeant's new CEO, Joe Papa, delivered his first interview since taking over.

Papa's only a week into his new gig, and he said that his first priority is to "re-recruit" Valeant employees.

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Pershing Square just posted a first-quarter letter to shareholders running through the hedge fund's investments.

The fund and its founder, Bill Ackman, had a torrid start to the year.

It seemed as if almost all of the fund's investments went against it, led by Valeant, the giant pharma company.

The following chart from the first-quarter letter spells out exactly how bad the first three months of the year were:

The fund has enjoyed something of a rebound through April, though, making a 10% return over the month. The gross return for the year to April 30 is now -17.5%.

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The "bros" on Wall Street are having a rough 2016.

Now by "bros," I don't mean former frat boys still clinging to their cargo shorts despite the salary afforded to them by their grown-up job at JPMorgan. I don't even mean the hordes of people who follow "smart" ideas from top investors — CNBC junkies and distracted money managers across the world.

I mean a very tight circle at the very top, and I call them bros because that's what Lehman Brothers CEO Dick Fuld did just before his erstwhile investment bank collapsed under the weight of its own toxicity.

"I agree we need some help," Fuld said in an e-mail included in Lehman's bankruptcy documents, "but the BRos always wins!! [sic]"

I mean the army of people who truly share the ideas and experiences of the very highest echelons on Wall Street. They went to the same schools and belong to the same clubs. They live in the same metropolitan areas or travel to them frequently. They see each other a few times a year if not more. They've done charity together. Their wives know each other. They go to the same vacation spots. They've run banks together, sometimes into the ground.

And they trust each other. That trust, born of familiarity from running in the same elite circles their whole lives, is the problem.

Don't bully, OK?

To illustrate my point, I offer two cases that everyone on Wall Street is likely very familiar with at this point.

First up, Valeant Pharmaceuticals. The former Wall Street darling has seen its stock collapse by 90% since October, taking scalps across Wall Street along with it. If you haven't read Bethany McLean's rundown of the drama, then you absolutely should.

McLean's story is mostly a review, but it's a great illustration of how the relationship between the biggest investors involved and the company's ousted CEO blinded everyone to a company's problems until it was too late.

Valeant CEO Michael Pearson was a charismatic Duke/McKinsey alum who convinced Wall Street that jacking up drug prices instead of investing in R&D was the right business model for pharmaceutical firms.

The big investors working with Pearson were ValueAct's Jeff Ubben, an early investor in the company, and Pershing Square's Bill Ackman, who jumped into Valeant in 2014 after being introduced to Pearson through a friend who knew him at McKinsey.

The way McLean tells it, until Ackman got involved, Ubben, an alum and trustee of Duke, invested in Valeant with a sort of "set it and forget it attitude." Pearson was left to run the company according to his vision and few questions were asked.

And why not? Valeant was a huge win for ValueAct. From McLean (emphasis added):

ValueAct, which grew into a highly regarded fund, in no small measure due to the huge success of its investment in Valeant. "We are all in on you guys and are very excited about it," one ValueAct partner e-mailed Pearson in 2014. Other investors took comfort in ValueAct's presence on the board, because, after all, that had to mean Valeant was being well managed and Pearson was being watched. But although ValueAct still owned a huge stake in Valeant, the fund was essentially playing with house money: by the end of 2010, it had gotten more in cash from dividends and stock sales than its original investment had cost.

The refrain coming from all sides on Wall Street at that point, McLean writes, was "you can't bet against Pearson," and ValueAct's investment was a vote of confidence that supported that. But as we know now, they were not watching him.

Then Ackman got involved, and he and Pearson teamed up to do a hostile takeover of Allergan Pharmaceuticals. Ackman knew that people would follow him into that investment, too, and that he would create a "wolf pack" of investors pressuring the market to reflect his thinking.

With the assumed faith that ValueAct, Pearson, and Ackman knew what they were doing, there was a lot of trusting and following going on here.

Ubben didn't like the Allergan deal, though, and Ackman's attacks on him came from all sides. This kind of Wall Street bro-on-bro violence can happen when that assumed trust sours.

From Vanity Fair:

Even ValueAct voted against the proposed deal. When a person close to C.E.O. Jeff Ubben called him to say, "Jeff, sell it to him [Ackman]. The room isn't big enough for the two of you," Ubben responded, "I just can't."

Making the situation worse, these cream-of-the-crop investors missed a fatal flaw with the company they were going "all in on." Through all of this, Ubben and Ackman have said that they knew nothing about Philidor, the secret pharmacy that allegedly defrauded insurance companies in order to make them pay for overpriced Valeant drugs. This is what eventually brought Valeant to its knees.

And they just let it slide right under their noses.

You can even be sloppy

Of course, this circle of mutual trust among bros going awry can also play out out on a much simpler scale. For example, consider the recent case of Andrew W.W. Caspersen, the blue-blooded Princeton alum who bilked almost $40 million from his fellow alumni and his own very wealthy family by telling them that he was selling an investment that offered "private equity returns (15%) but without the risk."

I don't need to tell you that investing 101 shows you that there are no returns without risk. Caspersen made an unbelievable statement, and the media has detailed all the clumsy ways he tried to legitimize it — fake e-mails, posing as other people on phone calls, and so on. It sounds like a scam put together by a bunch of stoned teenagers, almost.

But Caspersen was believed even by a sophisticated investor — and fellow Princeton alum — who allocated money for the charity belonging to Louis Bacon, founder of Moore Capital and one of the most well-known hedge fund billionaires in the game.

Obviously, the investor did little to no due diligence before they handed over this money. They invested not because the investment checked out, but because Caspersen, his family, and his pedigree did.

That is, it was OK to overlook Caspersen's outlandish claims because of who he was and the things that he and the investor had in common.

This matter will be settled much more quietly than Valeant. Caspersen will likely settle this matter out of court, according to The Wall Street Journal. It is, after all, something of a dispute among family.

The science

Making bad decisions because you put too much trust in someone like you isn't restricted to the Wall Street elite.

Social science has covered the topic of trust among people with similar backgrounds a lot. A few years ago, the Proceedings of the National Academy of Sciences published a study by Harvard researchers with the conclusion that we think people who have traits in common with us think like us, and we like that. It helps us trust them more than people who are not like us.

"Once you have a little piece of information about someone being similar to you or different, you seem to take it and run with it. You may think they are similar to you across the board, even though you may not have much reason to think this. It is rather surprising,"researcher Adrianna Jenkins told The Telegraph.

You think these people have the same values and are motivated by the same things you are. What's more, this happens instantly, at first glance.

Research published by the Harvard Business Review takes this idea a step further. It found that in one experiment, traders surrounded by a diverse set of ideas — good and bad — returned 30% more than their friends in an echo chamber.

Being around people who are different from you, that is, seems to lead to better results than being surrounded by clones of yourself.

It's not like no one has talked about this stuff on Wall Street. It's just that it looks like no one is listening. As former Citigroup CFO Sallie Krawcheck once said: "You know Wall Street went into the downturn white, middle aged and male and came out whiter, middle-aged-er and male-er."

In another interview, she said: "A diversity of management teams — yes, gender diversity, but also diversity of background and thought — actually leads to reduced risk and better returns over time."

Pay for it

If you're looking for diversity in ideas, you will not find it in today's hedge funds. And in 2016, that has really harmed the industry.

As Goldman Sachs pointed out in a recent note, jumping into the same stocks as everyone else returned you 68% if you employed that strategy starting in 2001. Not bad, but it's a strategy that doesn't work in this market.

From Goldman (emphasis added):

The high hedge fund concentration strategy rebounded from a poor start to 2016 and has outperformed the S&P 500 by 423 bp YTD (5% vs. 1%). The basket has historically worked best in an upward-trending market. The stocks in the basket tend to be mid-caps at the lower end of the S&P 500 capitalization distribution, which outperformed large-caps from 2004 to 2007, contributing to the attractive historical return. The concentration baskets are not sector-neutral versus the S&P 500.

Big-name hedge fund managers have lamented this problem. Ackman mentioned in his 2015 annual letter that it never occurred to him that his "wolf pack" would turn on him if his investments sagged, just as they supported him while he was doing well.

On a more macro scale, last month legendary Steve Cohen of Point 72 said that he was worried about this issue of too many people chasing not enough ideas.

"One of my biggest worries is that there are so many players out there trying to do the same strategies ... If one big one goes down, will we take collateral damage?" he asked from his Beverly Hills Hilton seat at the Milken Institute Global Conference.

To that the social research would retort, "Maybe you should try employing people who don't all think the same way because they all come from the same places."

You see, this is important because the "bros don't always win." And when they don't win, they tend to lose big.

They lose as a pack.

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Valeant Pharmaceuticals on Tuesday morning reported a Q1 earnings loss of $373.7 million, or $1.08 a share.

It also cut guidance for the rest of the year. The stock has fallen 16% in Tuesday's trading day.

There was one piece of information that really upset Wall Street.

You could tell because analysts kept asking about it over and over on the earnings call. It had to do with Valeant's new agreement to sell drugs primarily through Walgreens.

The problem is simple to explain, but hard to correct. Valeant isn't getting nearly as much as it expected for the drugs it's selling through Walgreens. Average sales price (ASP) is way down. In fact, sometimes Valeant sees negative average sales prices, and it doesn't seem as if management is totally clear on how to fix that.

"We're excited about the Walgreens program ... the program as you know is very innovative. It's a 20-year program and, naturally, when you put something together that is innovative you're going to experience some speed bumps," new CEO Joe Papa said on the call.

The nature of the bump

Valeant didn't have "speed bumps" with sales before because, for a while, it had its own private specialty pharmacy. It was called Philidor, and its very existence was unknown until October, when a short seller pointed out some shady activity going on with Valeant's accounting.

That, combined with government scrutiny over its pricing practices, brought Valeant's stock crashing down 90%.

And it brought about the end of Philidor. The government is still investigating why Philidor employees were told to use other pharmacies' identification numbers to push through sales with payers, why Valeant purchased the option to buy Philidor for $100 million, and why Valeant employees worked at Philidor using fake names.

Basically, it's a mess — the kind of mess that turns off the doctors who have to prescribe Valeant drugs and the payers who have to buy them. Valeant says it's working to rebuild those relationships, but that takes time.

The channel

In the meantime, without Philidor, segments of Valeant's business were left without the support of a distribution channel that pushed through sales. This has been a huge problem for the dermatology unit, which represented 21% of Valeant's US revenue, according to Morgan Stanley.

In December, Valeant struck this primary sales deal with Walgreens, but Walgreens is no Philidor. First off, patients did not have their prescriptions automatically switched from Philidor to Walgreens.

David Risinger at Morgan Stanley said in a recent note to clients:

Some patients had to obtain new Rx's from their physicians in order for Walgreens to dispense refills. This contributed to early 2016 disruptions and resulted in some lost prescriptions because some physicians elected to prescribe non-Valeant medications.

Remember, some doctors are none too pleased with Valeant.

The other problem has to do with process. If you're paying cash for a Valeant drug at Walgreens, you're good. If you're a commercially covered patient, then you should be good if Valeant drugs are covered by your healthcare provider. But when the drugs require prior authorization before disbursement from your provider — that's where Valeant is running into problems.

Sometimes, it seems, Walgreens is sending or giving out the drugs, and the payers are saying: "Hey, we don't do that product, sorry. We won't pay."

In negative territory

That's where Valeant is getting into "negative APS," which alarmed many an analyst on the Tuesday call. What's more, Morgan Stanley noted that dermatology sales aren't going up — they're actually leveling off since Valeant started its program with Walgreens.

This problem isn't just impacting dermatology either. On the call, one Valeant executive mentioned that this was also affecting the company's crown jewel, Xifaxin. It was expected to be a $1 billion drug in 2016, but in Q1 it hauled in only $207 million in revenue. In order to gain more distributors for the drug, Valeant had to settle for lower prices.

Executives blamed "disruption workforce turnover changes in leadership" (the head of Xifaxin's division left Valeant earlier this year) and "enrollment in high-deductible plans." On that latter point, it just seems patients don't think this $1 billion irritable bowel syndrome drug is worth their co-pay.

Technically, a problem

On the call, Papa and his crew framed this low-ASP problem as totally solvable. On the one hand, they explained that the company is working hard to regain its standing with doctors and payers.

On the other hand, Papa tried to describe negative-ASP incidents as technical glitches.

"We now have the data to look at that, and now we know which patients and issues we can address. We can work more closely with Walgreens to fix it," he said.

Morgan Stanley agreed. Yes, the company needs to know which payers will actually pay for its drugs. But it also has to make its new business model of selling a higher volume of drugs at lower prices actually work.

"We believe Valeant is evaluating which drugs to put into the program and how to manage reimbursement coding, so that when it offers brands at generic prices it does not cause peripheral pricing risk to branded drug reimbursement. For example, we believe Valeant may need to limit the program to select branded drugs which already have an extremely low Medicaid best price which would not be a risk of re-setting lower,"Risinger wrote.

In other words, Valeant should try to cheaply sell its already cheap drugs. And a lot of them. Like, a whole, whole lot of them.

There were other issues/things on the call that are worth pointing out:

• Analyst David Maris at Wells Fargo asked why Valeant wouldn't provide guidance numbers according to Generally Accepted Accounting Principles (GAAP). He was told: "We find to our investors it's more informative to guide to non-GAAP." (Uh, OK.)
• Valeant says that it's going to be working with independent pharmacies, giving them coupons to sell products in June.
• The company would not break out numbers for individual businesses, and would not discuss debt issues going into 2017. The company was, however, confident that it would have enough cash through 2016.
• The company expects generic competition for two of its most controversial drugs, Nitropress and Isuprel, to hit the market within the next six to 12 months.
• Valeant would not answer questions about what information the Securities and Exchange Commission has subpoenaed from it.

That's all, folks.

SEE ALSO: The departing Valeant CEO's separation agreement might make you choke up a little bit

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Things were obviously getting a little too boring around Wall Street for Carl Icahn.

The billionaire investor and founder of Icahn Enterprises decided on Thursday to dredge up one of his old feuds.

He told CNBC that Pershing Square's Bill Ackman was "dead wrong" in his short position in Herbalife, a multilevel marketing firm that sells nutritional supplements.

Of course, he also prefaced this by saying that Ackman was a "smart guy."

"Ackman is completely and totally wrong on this company," he said. "You know, Ackman is a smart guy and all, but he is just dead wrong. This company creates work for a lot of people. And to say it doesn't is ridiculous."

Herbalife's stock is up almost 110% since Bill Ackman declared before all of Wall Street in December 2012 that he had taken a short position against the company. It was just one of many positions that have turned against Ackman over the last year and change. In 2015, his hedge fund was down 20% for the year.

Ackman and Icahn have been feuding far longer than that, though. The two fell out over a deal (see: "schmuck insurance") after Ackman blew up his first hedge fund, Gotham Partners, in 2001. They sued each other for the next 10 years and, famously, couldn't even be in the same restaurant together.

Their feud ramped up again when Ackman started his crusade against Herbalife, which Ackman accused of being a pyramid scheme. He was very public about the position, giving multiple presentations slamming the company and kicking the whole thing off with a 342-slide deck at a special Sohn Conference event in New York City.

Icahn quickly took the other side of the trade, at one point calling Ackman a crybaby on CNBC:

"I'm telling you he's like a crybaby in the schoolyard. I went to a tough school in Queens, you know, and they used to beat up the little Jewish boys. He was like one of the little Jewish boys crying that the world is taking advantage of him."

It all ended two years later with what was, without question, the most awkward hug in Wall Street history.

To be fair, Icahn isn't having the greatest year either. In May, Standard & Poor's cut Icahn Enterprises' credit rating to junk. He's lost big on positions in energy stocks.

"We estimate that after quarter-end through May 13, 2016, IEP's large publicly traded positions declined by approximately $600 million, which would result in an LTV ratio of about 53%, holding all else equal," S&P's release said.

On the other hand, things have been a little boring around here.

SEE ALSO: This has been the worst year for Wall Street's 'bros' in a long time

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Hedge fund managers are usually considered the smartest investors in the game, but even the best sometimes make bad bets. Bill Ackman of Pershing Square Capital Management is one such hedge fund manager. He's an investor with a $1.6 billion net worth and an $8.9 billion portfolio of stocks in his fund, and despite his expertise and experience, he let one bad bet ruin his returns for probably years to come.

Here's what happened, and the lesson you need to learn from his unfortunate experience.

Bill Ackman's painful lesson in diversification

As of March 31, Pershing Square reported total assets under management of $12.3 billion, with an investment portfolio worth $8.9 billion, consisting of just nine stocks. Two stocks, Zoetis and Canadian Pacific Railway Ltd., are the fund's two largest holdings, each representing more than 20% of the portfolio. Three other stocks come in above 10% of the total portfolio. For most investors, that's an incredible amount of concentration risk.

Until this year, Ackman successfully managed the risk of the portfolio's high concentrations in just a few stocks. That streak ended, however, in the fund's 2015 investment in Valeant Pharmaceuticals International Inc.. That stock is now 91% off its all-time high from last August. Ackman and Pershing Square first began buying the stock just before those all-time highs, investing $3.3 billion in total. Pershing Square's investment is down 70% in 2016 alone.

Other than the Valeant investment, the rest of Pershing Square's portfolio is doing well. With the exception of just one other stock, all of the fund's investments are in the black so far in 2016.Restaurant Brands International, the fund's third largest holding, has beaten the S&P 500 year to date 3.6 times over. Canadian Pacific Railway, the second largest holding, has nearly doubled the index. Broadly speaking, Ackman's stock picks remain wise.

Those successes hardly matter though in light of Valeant's overwhelming decline. Thanks to Valeant, Pershing Square was down 18.6% through the end of May. The S&P 500 was up 2.59% over the same period.

No one, not even Bill Ackman, can invest perfectly. So diversify your risks instead.

Valeant's fall stems from an accounting scandal last October that forced the company to restate certain financial reports. The company later came under fire for cutting its R&D budget while raising the prices for its drugs. The company replaced the CEO in March and has since lowered its guidance for 2016 results. It's been a nearly perfect storm.

Ackman could never have predicted many of Valeant's issues, nor could anyone else outside company management. And in some cases, even executive management couldn't have seen the approaching storm. That's why this investment will go down as such a powerful case study in diversification.

A more diversified portfolio would mitigate Valeant's decline both by reducing the exposure to that bad bet and by giving more weight to Ackman's other investments, which are performing well. He's proved himself throughout his career to be a world-class stock picker and value investor; there's little doubt he could find 20 or 30 additional stocks that would probably succeed, diversifying risk without sacrificing too much profit.

Yes, a more diversified portfolio would have limited the potential upside if Valeant had continued its climb. But as this example and countless others in history have shown, no one can successfully bet correctly every time. Don't make the same mistake in your portfolio. Don't be greedy. Diversify your investments. It's just not worth the risk to put your entire nest egg all in the same basket.

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Standard & Poor's has cut MBIA Insurance's credit rating from B to CCC on fears that it will have to pay a $700 million claim for one of Patriarch Partners CEO Lynn Tilton's credit funds.

Since last year, the Feds have been looking into three of Tilton's funds, Zohar I, Zohar II and Zohar III. Regulators are trying to discern whether or not Tilton hid losses in those funds. Investors are suing saying that she misled them on accounting standards.

Zohar I filed for bankruptcy last year, but Zohar II and III were left out of that. It's Zohar II that's giving S&P pause now.

MBIA is on the hook to pay if Zohar II falls apart, and S&P thinks that means MBIA's "liquidity position is weak, and the company may not meet all of its insurance policy obligations in the next 12 months."

From the rating agency's release:

On Jan. 20, 2017, the insured notes issued by Zohar II 2005-1 Ltd. will mature and likely result in the company paying a claim in excess of $700 million. The claim payment will be an immediate payment. Management's plan to meet MBIA Corp.'s near-term liquidity needs includes various actions, none of which on its own would be sufficient to meet the potential claim payment on Zohar II. If management is successful in meeting the Zohar II payment, the company's liquidity will likely remain weak. MBIA Corp.'s liquidity position is subject to risks from payment timing on credit-default swap contracts, second-lien residential mortgage-backed securities excess spread recoveries and timing of backlog payment demands, and asset put-back success and recovery timing.

You'll recall that MBIA has fallen before. Hedge fund billionaire Bill Ackman of Pershing Square correctly predicted that it would be swallowed by subprime mortgage delinquencies back during the financial crisis.

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Bill Ackman's hedge fund has laid off eight lower-level staffers, The Wall Street Journal's David Benoit just reported, citing people familiar with the matter.

The cuts, mostly of back-office workers, amount to more than 10% of Pershing Square Capital Management's staff, according to The Journal.

The layoffs were unrelated to the hedge fund's recent poor performance and instead were due to the firm's ability to automate back-office tasks like filling out investor forms, according to the report.

A Pershing Square spokesman declined to comment.

Pershing Square has faced a decline in performance this year as a big investment in Valeant Pharmaceuticals soured. Ackman has said he expects the investment to rebound.

Pershing Square's publicly traded fund, which mimics the private hedge fund, is down 20.9% this year through June 21. The New York activist firm in 2015 had its worst year ever, slumping 20%.

With performance declines, assets under management have also dropped. The firm managed $20.2 billion at its peak last July, a number that fell to about $12 billion in May.

Pershing Square's structure has helped the firm retain assets by preventing a run on its reserves during rough times. Outside investors can pull only one-eighth of their capital every quarter, for example. And the firm's $4 billion closed-end fund is another source of permanent capital, since investors have to sell their shares to redeem.

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Some of the biggest names in finance from both sides of the Atlantic will face off against each other at tennis in London this weekend.

The Wimbledon finals may be making all the headlines, but people should also look out for the second annual Finance Cup — which takes place at the prestigious Queens Club in west London on Saturday.

Team Europe is looking for revenge after their 8-1 defeat to the Team USA in New York last year.

Organised by American Jeffrey Appel and Swede David Anving, the cup brings together some of the top tennis players from Wall Street and Europe's financial sector and has become one of the best networking opportunities in business.

The 40-person tournament mixes high-flying kings of finance such as hedge fund billionaire Bill Ackman with young up-and-comers from the City of London and Wall Street. Players are recruited by Appel and Anving.

Make no mistake, this is no casual meetup between bankers to hit a ball around — many of these players had ATP rankings, NCAA rankings, and have beaten top pros.

Some of the biggest companies in finance are represented, including Goldman Sachs by its Co-Head of Global Securities Pablo Salame and Head of the European Private Credit Group James Reynolds, JP Morgan Executive Director Alfredo Caturano, HSBC Nordic Private Banking head Tobias Hildebrand, billionaire Christer Gardell founder and CIO of 15 Billion Cevian Fund - Europe's Largest Activist investor, and of course Perishing Square Capital billionaire Bill Ackman.

The competition is divided among three age groups: Open at 22-36, Mid-Age 37-46 and Senior 47+ categories. BI caught up with the cofounders to hear what the tournament is all about.

"We want to help young people who have given so much to tennis."

It all started with a Business Insider article from two years ago, when the site explored the Wall Street tennis community that Appel is credited with forming.

Anving, who had been the captain of the tennis team at the University of Michigan, saw the article and called Appel to suggest they meet up. Eventually they did at the French Open, when Appel and Ackman went to watch Frances Tiafoe.

Soon afterwards, the idea of their own tournament took hold and Anving bought a European team to New York. Appel recalls that he and Anving "became close friends and shared a lot of mutual interest in the sport of tennis. We want to help young people who have given so much to the game."

Anving, partner at Global Asset Capital, says: "For us, the initial idea was to get together for high-level games, but since the first year we’ve together helped a lot of young kids who are in college now and want to get into Wall Street or the City of London to work. So at a personal level that gives me the most satisfaction. And it’s a big team so there’s 40 people in total. It’s great for networking."

This seems to be Appel's main goal for the tournament. He says: "A lot of great friendships and business relationships have come out of this. We want to help other people and hope this will be a tradition that goes on for many years."

Anving adds: "It’s great to meet people from both the US and all over Europe. Even if you’ve never met them before you tend to have common friends and there’s a sense of community."

'The Mayor of New York Tennis'

Appel — known as the "Mayor of New York Tennis" and recently ranked no.12 in the USTA 45s Singles category and no.1 in Eastern 45s Singles — can also be credited with getting Bill Ackman back into the game after sending him his own blind email eleven years ago. Ackman is now Appel's co-captain a major part of Team Wall Street.

"The tennis community in NewYork is very ingrained in the finance community," Appel told Black Label Tennis in 2014. So why are so many great tennis players so suited to the world of finance?

"That’s a good question," says Anving. "I guess because both require an intense amount of hard work and discipline. A lot of these guys were really good in college and just want to keep that intensity up. [Finance] jobs are a lot like tennis really, you look at traders where it can be so up and down, and I think that mentality for tennis comes in very helpful."

Appel knows that Team Wall Street needs to stay on its toes this weekend, saying: "David successfully and aggressively recruited for Team Europe this year and did a great job. We're looking forward to great matches and know that the change to grass courts will be an extra challenge."

Anving is confident, saying: "Our team is much better than it was last year… but so is Team USA. I think we need a couple of wins in the older and younger sections, but in the mid-age are really strong."

Here are team rosters for the annual Tennis Finance Cup. Keep an eye on Business Insider for the results after the weekend:

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Last weekend was a huge deal for tennis — and not just because Andy Murray won a second Wimbledon title.

The second Finance Cup, an intense battle between the best tennis players on Wall Street (USA) and the City of London (Europe), took place on Saturday in London.

It was organised by Jeffrey Appel — known as the Mayor of New York Tennis — and David Anving, who got in touch with Appel after reading a Business Insider profile on tennis in the finance sector.

They managed to bring together some of the biggest names in finance who share a love of the game. Billionaire Christer Gardell, the founder and CIO of Europe's Largest Activist investor Cevian Fund, takes part in the tournament and Pershing Square Capital billionaire Bill Ackman is Wall Street's co-captain.

Europe was looking for revenge after its loss in New York last year, but Wall Street was not going down without a fight.

Find out who played and, more importantly, who won:

The competition took place at the prestigious Queen's Club in West London, a change from the indoor courts of Randall's Island in New York last year. "Grass is a very tough surface to play on for people not used to it," Appel noted.

Both teams met in the clubhouse to network and catch up before hitting the courts.

The tournament kicked off with a Team Europe win from Zoltan Csanadi, a partner at Evercore ISI, and Ludovic Walter, who is at Barclays Capital.

Things could have been much different for Valeant Pharmaceuticals if former CEO Michael Pearson had stuck to his original guns about hedge fund billionaire Bill Ackman.

Apparently, Pearson didn't want Ackman anywhere near Valeant when the two first started talking. Neither did Valeant's board.

This weird tension is recounted in an amended complaint to the ongoing lawsuit between Ackman's Pershing Square hedge fund, Valeant, and investors in Allergan Pharmaceuticals.

It must've been love

Valeant tried to acquire Allergan with Ackman's help back in 2014, and now investors including State Teachers Retirement System of Ohio and Iowa Public Employees Retirement System are accusing them of insider trading.

In a nutshell, the plaintiffs allege that Ackman and Valeant (whose CEO at the time was Pearson) teamed up in a hostile takeover. Valeant told Ackman that it would be attempting the hostile takeover, and Ackman is accused of buying up Allergan stock to compel the company to take Valeant's offer.

This is all based on SEC Rule 14e-3. Basically, if company A is planning to take over company B, anyone with knowledge of that takeover can't trade in company B once company A has started to make moves to bid for the company.

The deal never happened, but Ackman (who got a nice payday when a white knight bought Allergan instead) and Pearson notoriously skipped off into the sunset together, becoming near-partners in presiding over Valeant's troubles.

But things could have been very different.

According to an amended complaint filed in the insider-trading case, Pearson didn't want Ackman anywhere near his company.

From the complaint (emphasis ours):

"It was also clear from the outset that Valeant — not Pershing — would be acquiring Allergan, and that Pershing would have no control over the offer and no role in the combined company if the deal closed. In fact, Pearson flatly rejected the idea that Pershing or Ackman would have any say in managing the combined company if Valeant's bid was successful, later testifying that "I don't want [Ackman] on our board and our board doesn't want him on our board," and that Valeant was firmly opposed to anyone else from Pershing having any role whatsoever in the combined company.

"The fact that Pershing was to play no role in the combined company is not surprising given that neither Ackman nor Pershing had any prior experience investing in a pharmaceutical company, let alone running one. Indeed, Ackman told investors during an April 22, 2014 conference that "we [had] never looked in pharmaceuticals before," explaining that "I [had] not actually looked at a pharmaceutical Company of any consequence" before meeting with Pearson at the beginning of the year."

But it's over now

Valeant came under fire in October when accusations of malfeasance from short seller Andrew Left of Citron Research combined with government scrutiny over its drug-pricing practices to bring the stock careening down.

Pearson was forced to exit the company in the fallout, and now Ackman and his allies are all over the company's board.

Certainly not what Pearson intended at the outset.

He most likely also didn't intend to sell about $100 million worth of Valeant stock earlier this week, but he did, citing "personal reasons."

"I continue to believe in Valeant, Joe and the rest of the management team,"Pearson said in a press release. "While I trimmed my ownership position for personal reasons, I plan on holding my remaining shares until the company recovers and returns to being traded on fundamentals."

Pearson is required to hold 1 million Valeant shares for the next two years, according to his departure agreement with the company. He is also not allowed to disparage Valeant, which is paying Pearson $83,333 a month to continue on as a consultant.

Ackman said on CNBC's "Halftime Report" on Thursday that the sale was "sad." He also explained that Pearson had to sell his shares to pay off taxes from a previous forced Valeant stock sale. Last year, when the company's stock plummeted, Goldman Sachs called in a $100 million loan it had made to Pearson. Pearson used that money to make a donation to his alma mater, Duke University.

"I think Mike was forced to sell," Ackman told CNBC. "The government unfortunately doesn't wait for you to pay your taxes."

Yes, that is unfortunate.

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