Herbalife, under fire, denies pyramid claim

The embattled company likens itself to the Girl Scouts, which offers cookies through direct sales. 'Nobody attacks them,' the CEO laments.

By Jonathan Berr Jan 10, 2013 2:14PM
Image: Arrow Down Umbrella (Photographers Choice RF/SuperStock)Herbalife (HLF), the embattled distributor of nutritional supplements and personal care products, again denied it was a pyramid scheme Thursday as two hedge fund titans battle over the future of the company.

In a presentation to investors in New York City, CEO Michael Johnson lashed out at claims leveled against Herbalife by short seller William Ackman of Pershing Square, who has bet that the stock will fall. As the Wall Street Journal noted in its live blog of the event, Johnson didn't mince words in his hours-long presentation.

"Don't believe everything you hear," Johnson is quoted as saying. "We've got a great company and we're moving forward with it. . . . Girl Scouts sell cookies on a direct-selling basis. Nobody attacks them."

He later went on CNBC and made many of the same points. Johnson, whose company is under investigation by the Securities & Exchange Commission, scoffed at Ackman's promise that he would donate his profits from shorting Herbalife to charity. Shares of Herbalife, which were up before the interview, began trading down in the afternoon.

"He is going to donate all of his profits?" Johnson asked.  "I will believe that when I see it."

Not surprisingly, Johnson declined to comment on the SEC's probe or a possible lawsuit against Ackman. The questions surrounding Herbalife, which has been around for 32 years, aren't going to be settled any time soon. Many on Wall Street like the stock. The average 52-week price target on the stock is $71.43, about 80% higher than where it currently trades.

Another activist investor, Third Point's Daniel Loeb, has taken a long position in Herbalife and is now the company's second-largest shareholder. Carl Icahn, yet another billionaire investor, may have also bet that Herbalife's shares will rise, according to the New York Post.

Herbalife, based in the Cayman Islands, has been dogged by controversy since it went public in the 1990s. Founder Mark Hughes died in 2000 following an accidental overdose of alcohol and anti-depressants. His estate has been involved in numerous legal battles since then. David Einhorn, another short seller, spooked the stock market last May when he raised questions about the company's finances. 

"Eighty percent of what Ackman had said was already out there," said Sam E. Antar,  a convicted felon who gained fame as CFO of Crazy and now is a consultant on White Color fraud, in an interview. He added that the SEC has been aware of abusive practices of multi-level marketers for years and failed to address them.

Though Antar is rooting for Ackman to prevail, he said it will not be easy given the power of the multi-level marketing industry.

"It's going to be a 15-round boxing match," he said.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr

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Tags: Investing
Jan 10, 2013 2:58PM
This is stupid just for the fact that this didn't start till a large investor started talking about short selling stocks.  Pretty sure turning up the heat by opening his mouth has allowed him to make even more money on selling short.  It just shows that the market can be shifted like a vegas line if someone has too much money and power.  How is this not insider trading?
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