Herbalife tanks on 'pyramid scheme' criticism

The weight-management company sees shares fall nearly 13% after a high-profile fund manager questions the business.

By Kim Peterson Dec 19, 2012 4:28PM
Image: Woman on scale (Zave Smith/Corbis)Updated 4:30 p.m. ET

(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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Tags: Investing
Dec 19, 2012 5:10PM
Herbalife isn't a "pyramid scheme", its a scam (a worthless product sold as being of value) pure and simple
Dec 19, 2012 5:45PM
 If you bash a stock on blogs that you're shorting to manipulate the price you can be fined and jailed. Why can a fund manager do the same thing with no proof? He probably made millions today simply by declaring his suspicions yet offered no proof on a company he's been shorting 7 or 8 months. I have no opinion on this company but it still seems nore designed to make his bet profitable than to expose anything.
Dec 19, 2012 5:09PM
How could it possibly take anyone this long to figure this out...? If this wasn't obvious as well as all the other MLM crap, this guy needs a new occupation.
Dec 19, 2012 6:45PM
My ex. tried selling that stuff and it is nothing but a scam. There's no way you can make any money out of it. You spend your time recruiting other people into it. The more people you recruit the more money you will make because you get a cut from everyone you recruit. But nothing can say Herbalife on any of the recruiting methods you use. In the end you just lose money and end up selling the crap back.
Dec 19, 2012 6:41PM
What no mention of the biggest scam of all, Ben Bernanke and Wall Street manipulation?!!!
Dec 19, 2012 6:28PM
A manipulator, pure and simple.  Takes a short position, says so, and uses his market clout to disparage the company.  It's been in business a long time so I doubt that it is simply a pyramid scheme, even if it employs some MLM aspects.  This type of company bashing for personal profit should be illegal, and may be.
Dec 19, 2012 5:59PM
A pyramid scheme is a non-sustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public.  If a company offers a product for sale, it's not a pyramid. Lots of products out there that are debatable as to their value, but obviously if no one buys, the company dies.
Dec 19, 2012 8:05PM
Biggest Scam in America > The President / All of Congress and our tax dollars
Dec 19, 2012 6:18PM

I'm with Good Bargains.  Regardless of the effectiveness of one of the products many are exaggerated in advertising, Einhorn made similar statements back in May and has profitted from them.  If there were legal grounds to prosecute for misrepresentation, one would think that would have already been underway against Herbalife.  That Einhorn and now Ackman are making public statements to in effect up the return on their shorts seems prosecutible as I understand it regardless of what type of bully Ackman is.  An activist would do something without expected gain, a financial "bully" will first set his base, buy in , then manipulate the market to his advantage.

Dec 19, 2012 6:05PM
Dec 19, 2012 5:47PM
Everybody's crook these days. I don't trust anybody except my cats.
Dec 19, 2012 6:19PM

An Walk Street isn't a Pyramid Scheme.  Come on....................... Bernie

Dec 19, 2012 9:08PM

Lets see. You have  to recruit people to sell for you. As well as sell to. While working with "Your Sponsor" who has server member that working at the same level you are.  Who helps you find other people to so you can sponsor them. Once you have your group together. You start helping them find their member that they can sponsor. The whole while you are building level upon levels that a percentage of their sales comes to you and your sponsor and your sponsor's sponsor.


So, NOOOOOOO....  it is not a Pyramid..  Noooo     wait..             Sponsor

                                                                                          Sponsor, Sponsor

                                                                                Sponsor ,Sponsor ,Sponsor

                                                                  Sponsor ,Sponsor,Sponsor,Sponsor,Sponsor


Sort of looks like a Pyramid, But just because it looks like a duck, quakes like a duck, and walks like a duck ...  does not mean it is a DUCK. Maybe it is Swan

Dec 19, 2012 7:46PM
People, people, relax. It's NOT a pyramid scheme. It's a triangle business model. (I have a friend who said this to me with a straight face).
Dec 19, 2012 7:14PM
Golden parachutes all around for the managers  and CEO..and LEAD parachutes fot he stockholders!
Dec 19, 2012 8:13PM

it is a pyramid scheme. they call it multi-level marketing. basically you make the person at the top quite wealthy while you struggle. I used to be a supervisor level, and lost my shorts.


Dec 19, 2012 5:22PM
Yes STUPID! Herbal life, Shacklee, and all that other crap is pyramid schemes and offering a money back warrenty for a loophole does not change that fact one itty bitty bit!
Dec 19, 2012 7:25PM
What it is ... is a fraud company full of cult members who fall for their BS and it is all over the world ... I lived in iceland and even there people fell for the scam
Dec 19, 2012 4:49PM
Why dosen't he just leave the Company alone.My Hamster happens to enjoy his Habitrail and we love watching him run around in all of those little tubes.What Honey ????? Oh??? Never mind.
Dec 19, 2012 8:24PM
A pyramid scheme where the person at the top makes all the money and every one else struggles?  Sounds the same as the job every one goes to.  FYI 95 % of all businesses fail so are they all a pyramid scheme as well? 
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