Posted 31 December 2012
From: Consumer Health Digest #12-46, December 27, 2012
Herbalife attached as “pyramid scheme”
Billionaire hedge fund investor Bill Ackman has mounted an attack on Herbalife that he apparently hopes will drive it out of business. The attack was launched with a 3-1/2 hour presentation at the Sohn Conference Special Event on December 20th. During his presentation, Ackman noted:
- Herbalife recruits unwitting “distributors” with the promise they can achieve lofty incomes. However, fewer than 1 in 1,000 do so.
- Herbalife’s products are overpriced but sell because they are bundled with a perceived business opportunity. However, the vast majority of new distributors make nothing.
- Herbalife is a pyramid scheme because its participants obtain their monetary benefits primarily from recruitment rather than the sale of goods to consumers.
Ackman began short-selling as his report was compiled and says that he has short-sold more than 20 million shares. (A short sale is a market transaction in which an investor sells borrowed securities in anticipation of a price decline and is required to return an equal number of shares at some point in the future. Short sellers will gain if the stock price goes down and lose if it rises.) Ackman has pledged to donate any personal profits to charity. Herbalife’s price plummeted after Ackman’s presentation but has rebounded slightly in the past few days.
Pershing Square Capital Management, L.P., which Ackman heads, has launched FactsAboutHerbalife.com, which contains Herbalife distributor presentations, recruiting scripts and presentations, distributor lifestyle videos, third-party investigative reports, Herbalife Today magazines, court hearing and deposition transcripts, archival video and other materials on the company’s history, lead generation systems, SEC correspondence, and other data to help the public understand the facts about Herbalife. The most significant items are the video of Ackman’s presentation, the PowerPoint slides from the presentation, and the 4-part CNN investigation that decimated Herbalife sales in 1985.