Herbalife Is A Pyramid Scheme: Hedge Fund Manager

Bill Ackman, the head guy at the Pershing Square Capital Management hedge fund, is convinced that Herbalife is a pyramid scheme.

Herbalife, a multilevel marketing company that sells nutritional supplements, reportedly has $4 billion in annual sales and about three million independent distributors in 87 countries.

The Denver Post has more on Bill Ackman’s crusade against Herbalife:

“[Ackman] claims it’s a pyramid scheme that takes advantage of desperate and unsophisticated people. He says it simply must be shut down by the Federal Trade Commission. He has shorted the stock and said he expects its value to go to zero once this happens.”

According to Yahoo! Finance, Ackman — who is described as an activist investor — wants federal regulators to thoroughly look into the matter:

“We’re prepared to spend whatever it costs and do whatever is required to make sure that the world understands the facts about this company.If the government comes out and determines that this is a legal business then I will lobby congress for them to change the law.”

Businessweek summarizes Ackman’s main beef with Herbalife:

“Ackman’s chief argument is that Herbalife products are commodities sold at inflated prices to mask incentives that mostly enrich the top echelon of distributors. He estimates that more than 90 percent of profits earned by distributors come from recruiting. Herbalife’s [spokeswoman Barb] Henderson disputed this in an interview, saying that amount is zero.”

Herbalife, which has an investor conference on Thursday during which it is expected to refute the allegations, claims that Ackman is “manipulating markets to profit from more than 20 million short shares held by his hedge fund.”

Ackman’s 334-slide Herbalife public presentation originally made on December 20 can be found here.

Have you ever been involved with multilevel marketing?

Watch Bill Ackman’s interview on CNN about Herbalife: