How Two Hedge-Fund Giants Turned a Schoolyard Fight into a TV Battle Royale

The Players: Bill Ackman, founder and CEO of Pershing Square Capital, a hedge fund with about $8 billion in assets; Carl Icahn, another hedge-fund manager, and old school Wall Street "raider," who has led successful takeover of dozens of major corprorations and is personally worth close to $15 billion.

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The Opening Serve: Icahn called in to Bloomberg TV on Thursday to criticize Ackman for his very public short selling of the health supplement company Herbalife. (Ackman has called the company "a pyramid scheme" and has a sizable bet riding on his belief that it will soon be exposed for what it is and go under.) On Bloomberg TV, Icahn said Ackman's position was "disingenuous" and that Ackman was taking a "holier than thou" attitude about the company that is built on the multi-level marketing business model.

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The Return Volley: On Thursday night, Ackman issued a press release saying that Icahn is a good investor but can't be trusted. He defended his short but also reminded people of a deal the two businessmen once made that ended with a lawsuit and a lot of hurt feelings. He also called into CNBC Friday afternoon to continue his defense on national television.

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That's when the fireworks started. Icahn himself called in to the show and the two did battle for a full half-hour on live TV. The billionaires traded barbs, insults, curses—mostly from Icahn, directed at Ackman and anchor Scott Wapner—all while financial journalists on Twitter and stock traders watching on TV exploded with delight. You can watch the entire segment below, but we pulled out some of the best quotes to give you some of the flavor:

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What They Say They're Fighting About: There is a growing problem in the stock market with hedge funds taking so-called "activist" positions. If a guy like Bill Ackman—a major investor with billions of assets under his control—goes on TV and says he doesn't like a company, he can almost single handedly undermine confidence in that company. That causes the stock to drop, which makes his prediction that it's a bad stock to own a self-fulfilling prophecy. And if he happens to have a major short position in the company, he can make a awful lot of money badmouthing businesses for a living.

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It doesn't even matter whether the company is an actual loser or even if Ackman thinks it is, but it becomes a big loser the minute these major hedge-fund guys say that it is. That's why Icahn called the short "disingenuous" and why Ackman fired back that Icahn has publicly shorted plenty of stock in his lifetime. But it's also curious that Icahn would not reveal whether or not he is an investor in Herbalife (which would give him a major financial incentive to prove Ackman wrong.)

What They're Really Fighting About: Ackman and Icahn actually have a bad history that dates back to a 2003 business deal that went sour. You can read about the technical details of it here, but the short version is that they fought over money, Ackman won in court, and Icahn eventually had to pay him $9 million, plus legal fees. That's not a lot of money to a guy like Icahn, but it obviously left a bad taste in his mouth. Ackman considers Icahn a liar who goes back on his word; Icahn thinks Ackman's a young punk working "pump and dump" schemes—the hedgie version of an ambulance chaser.

Ultimately, this is more of a pissing match between two billionaires who don't like each other personally, don't like to lose, and prefer to fight their battles in the markets with other people's money. For Herbalife, companies like theirs and the people who work for them that get caught in the crossfire.

Who's Winning Now: For now, it's CNBC, which just got the best half-hour of television it's seen since Jim Cramer lost his mind in 2007 over Bear Stearns. Icahn came off like a grumpy old man, but the jury is still out on whether Ackman's Herbalife deal will make him rich or potentially ruin his reputation forever. (The stock jumped considerably during the hour the two men were arguing on TV.) Either way, the entire hedge-fund industry—even all of Wall Street—seems to be taking sides in this fight and the eventual outcome could shake up the market in a very dramatic way.