Herbalife tanks on 'pyramid scheme' criticism
The weight-management company sees shares fall nearly 13% after a high-profile fund manager questions the business.
Herbalife (HLF) plunged nearly 13% Wednesday after one of the world's most prominent fund managers said he's betting against the weight-management company. By market close, however, shares had recovered to about a 5% loss.
Bill Ackman, who's in charge of $11 billion in assets at Pershing Square Capital Management, confirmed that he's taken a short position in the stock. Short sellers borrow shares and sell them, holding out hopes of buying them back at a lower price and then returning them. Essentially, short sellers target stocks they think will lose value fairly quickly.
Ackman told CNBC that he's been researching Herbalife and thinks it's a "pyramid scheme." He said he has been short on the shares for seven to eight months. Herbalife sells protein shakes and vitamin supplements, among other products.
Ackman is expected to share more thoughts on the stock at an investment conference Thursday in New York, CNBC reported.
Ackman is a high-profile investor and his word is taken very seriously on Wall Street. He has an activist bent, often pressing for changes at companies he's interested in. The Globe and Mail recently named him 2012 CEO of the year, saying that in Canada he is a "boardroom barbarian who toppled four-star corporate generals at one of the country’s most historic companies."
Herbalife has been in Wall Street's doghouse since May, when another famous short seller, David Einhorn of Greenlight Capital, asked pointed questions about operations in an investor conference call. The stock went from more than $70 to $53 that day, and has continue falling since to $38.05 Wednesday.
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[BRIEFING.COM] The major averages are mixed at midday with the Nasdaq Composite (+0.3%) and Russell 2000 (+0.3%) holding modest gains, while the Dow Jones Industrial Average (-0.3%) and S&P 500 (-0.1%) underperform.
Equity indices opened the midweek session on a strong note after the advance GDP reading pointed to a 4.0% expansion during the second quarter. In addition, a batch of better than expected earnings also factored into the early strength.
Despite those two ... More
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