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Pyramid scheme allegations send Herbalife stocks plunging a second day

By Associated Press


PORTLAND, Ore. » Herba-life Ltd.'s shares fell sharply for the second day on hedge fund manager William Ackman's allegations that the nutritional supplements company is a pyramid scheme.

The founder and CEO of Pershing Square Capital Management LP said Wednesday that he has been shorting the company's stock for several months. Short sellers earn money when a stock declines. Ackman detailed his allegations in a presentation Thursday at the Sohn Conference Foundation meeting in New York and confirmed that he has an "enormous" short position.

According to numerous reports, Ackman claimed in his presentation that Herbalife is misrepresenting some of its financial information to disguise the nature of its business. He alleged that distributors make more money from recruitment than from sales, which he says would define it as a pyramid scheme.

Herbalife, which signs up independent distributors to sell supplements and weight loss products, vehemently denies the claims. Its Chairman and CEO Michael Johnson said Wednesday that the allegation that Herbalife is a pyramid scheme is "bogus."

The company found that a large number of put options on its stock are due to expire today and suggested that the timing of the presentation is suspect. A put option is the opportunity to sell a certain number of shares at a certain price and date in exchange for an upfront fee. Ackman denied on CNBC that he has any put options on the stock. He also said he intends to donate his profits from his position on the company to charity.

Herbalife said it asked Ackman to allow Herbalife to participate in his presentation, but Ackman declined.

"Now we know why," the company said in a statement Thursday. "Had our executives been there, they would have been able to tear Mr. Ackman's premises and interpretation of our business model apart. His misstatements and mistakes are too numerous to address immediately."

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autumnrose wrote:
Aren't there MANY multi-level marketing businesses like Herbalife, where most people who buy the product have become distributors themselves? What about Shaklee, or Amway, Melaleuca or Mary Kay...?
on December 21,2012 | 01:10AM
primo1 wrote:
Network marketing (they hate that label), multi-level marketing, "entrepreneurship", call it what you will they all work the same way. Nobody wants to actually do the work to sell this crap, the big bucks are in recruiting. Then just sit back and collect the commission off sales (and other recruits). Amway might've been the first global pyramid scheme ever. If it looks like a duck, quacks like a duck, then it must be...
on December 21,2012 | 10:25AM
primo1 wrote:
They all operate the same way. Just recruit suckers to actually sell the stuff, sit back and count your comissions (and recruits). Amway may have been the first ever global pyramid scheme.
on December 21,2012 | 11:41AM
cojef wrote:
Looks like the kettle is calling the pot black. Eveytime someone profits from another's perceived mistake, all hell breaks loose.
on December 21,2012 | 07:42AM
Synikal1 wrote:
Excuse me...anybody wanna hear about a 90 day challenge one that u can make a lot of $$$, cars, and trips??? Info my box at 1-808-LIE-SALUS...=)
on December 21,2012 | 02:45PM
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