A consumer advocacy group has called on the Federal Trade Commission to investigate the business practices of Herbalife Ltd., a Los Angeles nutritional products company that’s been described as a pyramid scheme by hedge fund manager Bill Ackman and others.
Ackman made his case to Wall Street in December, arguing that the company is a fraud because most of its distributors make no money while a select few -- at the top of the pyramid -- get rich from commissions based on sales of those they recruit into the business.
Herbalife, in business since 1980, sells meal-replacement shake mixes, protein bars, vitamins, and skin and hair products through a network of independent sales people in more than 80 countries. The company said most of its sales people do not intend to make a living selling the products, but instead become distributors to get discounts on products they personally consume. Ackman’s claims, the company said, are motivated by greed and an effort to manipulate its stock price.
Sally Greenberg, executive director of the National Consumers League, said in a letter Tuesday that it’s difficult for consumers to determine whether to believe Ackman, whose firm, Pershing Square Capital Management, has a $1-billion bet that Herbalife’s stock price will fall, or the company, which is in the fight of its life.
“It is difficult for the typical consumer, and even for the National Consumers League, which has expertise in this area, to weigh these conflicting claims,” Greenberg said in a letter to FTC Chairwoman Edith Ramirez. “This necessitates an investigation of the kind that the FTC is well equipped to conduct.”
In a recent regulatory filing, Herbalife acknowledged that the Securities and Exchange Commission is investigating its business operations. The company, which has maintained that Ackman’s assertions are incorrect, released a statement that said an investigation was unwarranted.
"We regret that the National Consumers League has permitted itself to be the mechanism by which Pershing Square continues its attack on Herbalife," the company said. "If anything, it is Pershing Square that should be investigated by appropriate authorities. Its actions are motivated by a reckless $1-billion bet against the company based on knowingly false statements about Herbalife. Those statements unquestionably cause harm to our consumers and investors and indeed all consumers and investors."
Hedge fund manager alleges Herbalife is 'pyramid scheme' Follow Stuart Pfeifer on Twitter