Business

Herbalife to answer 'pyramid scheme' claim; stock slide continues

Herbalife LimitedMutual Funds

With its three-day stock plunge accelerating Friday, Herbalife Ltd. said it will defend itself against a hedge fund manager’s accusations that the business is a “pyramid scheme” – but the company said its response won't come until next month.

The Los Angeles maker of nutritional products said Friday that it will wait until the week of Jan. 7 to host an event for analysts at which it will respond to the “distorted, outdated and inaccurate information” alleged by moneyman Bill Ackman.

Ackman, who founded Pershing Square Capital Management, says Herbalife rewards its sales representatives more for recruiting distributors than for selling products. The compensation structure, he says, leaves millions of small-scale sellers making next to nothing while an elite few rake in huge paydays.

Ackman called Herbalife “the best-managed pyramid scheme in the history of the world” – allegations he spelled out in a multimedia presentation delivered Thursday to a full house in New York and streamed live online.

Herbalife's stock price has plummeted since Ackman indicated Wednesday that he is “shorting” the stock. In a short sale, an investor borrows stock and immediately sells it, intending to eventually return the shares to the original owner after buying them back at a lower price.

The company's shares were trading late in trading day Friday at about $27 a share, down 36% from their closing price Tuesday.

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Copyright © 2014, Los Angeles Times
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