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Ackman attack on Herbalife fizzles, shares rise

Media IndustryHerbalife LimitedSalesBusinessMutual FundsFBIU.S. Securities and Exchange Commission
Ackman makes new allegations against Herbalife
Herbalife critic Bill Ackman levels new charges, investors unimpressed
Herbalife shares climb despite critic's charges

Longtime Herbalife Ltd. critic Bill Ackman leveled new allegations against the company, saying training programs for its prospective sales people are misleading and violate labor laws.

But investors seemed unimpressed, driving shares of the Los Angeles nutritional company up 17% in Tuesday morning trading. One day earlier, Herbalife shares fell 11% on word of Ackman's latest attack.

In a presentation in New York, Ackman focused on training for people who intend to open Herbalife nutrition clubs. He said the would-be salespeople are duped into thinking they can make hundreds of thousands of dollars a year, when most of them will fail.

They are also required to provide free labor for those who recruit them into the business and must recruit new customers before graduating, said Ackman, an activist investor and hedge fund manager.

"You see these people really work hard," Ackman said. "Unfortunately, they don't know they're being defrauded."

Herbalife was also on the offensive Tuesday. It issued a news release ahead of Ackman's presentation that said an economist has determined the company's business model is legal.

The company's social media team also issued sharply worded defenses on Twitter throughout Ackman's presentation.

“There is nothing compulsory about long term training. ANY member can start selling whenever they want. #AckmanFail," the company said on Twitter.

Ackman launched his attack of Herbalife in December 2012, saying it operates a pyramid scheme that victimizes its independent salespeople. He said he had shorted the company's stock by more than $1 billion, betting that its shares would fall when regulators ultimately shut the company down.

The Securities and Exchange Commission, Federal Trade Commission, FBI and at least two state attorneys general have opened investigations, but no action has been taken.

Ackman said Tuesday that he's spent about $50 million investigating the company and remains convinced that its business model is illegal. 

At the conclusion of Tuesday's nearly three-hour presentation, Ackman became emotional as he directed his attack to Herbalife chief Michael O. Johnson.

"Michael Johnson is a predator. This is a criminal enterprise," he said. "I hope you're listening Michael. It's time to shut the company down."

Herbalife said in a news release that its business model is perfectly legal.

"We are proud of the tireless efforts of our millions of members around the world and know that their passion is what makes Herbalife the incredible company it is today," John DeSimone, the company's chief financial officer, said in a statement.

 

 

 

 

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