Date
16 August 2017
Independent distributors fill orders at a Herbalife terminal. A major US hedge fund says Herbalife is a  pyramid scheme. Photo: Bloomberg
Independent distributors fill orders at a Herbalife terminal. A major US hedge fund says Herbalife is a pyramid scheme. Photo: Bloomberg

Bill Ackman bombshell: Herbalife is a pyramid scheme

In a green mast head on its website, next to the company name and logo, Herbalife proudly proclaims “nutrition for a better life”.

For the most part, the company has been a change agent, encouraging people to take up a healthy lifestyle.

And consumers don’t mind that they’re spending for its health products and making shareholders wealthy. Herbalife is worth US$5.3 billion.

As a business, it’s less than a wholesome player in the marketplace. In fact, it’s a pyramid scheme, according to billionaire investor Bill Ackman.

Ackman has spent US$50 million of investor money to prove his claim and the results of the undercover investigation, which zeroed in on Herbalife’s nutrition clubs, will be released at a presentation Tuesday in New York, Bloomberg reports.

Apparently, it’s something in the scale of the Enron scandal involving fake trades before accounting fraud caused its collapse in 2001.

Ackman, founder and chief executive of Pershing Capital, has spent the past two years trying to shut down Herbalife.

He has a US$1 billion bet against the company, saying it misleads distributors, misrepresents sales figures and sells a commodity product at inflated prices. Federal regulators and law enforcement also are investigating allegations that the business is a pyramid scheme, according to the report.

Ackman says Herbalife nutrition clubs function as rogue trading hubs, which is part of the company’s direct-selling approach, similar to the Enron operation shortly before it went down.  

“An in-depth analysis and examination of these clubs — which Herbalife claims are simply social gatherings that bring people together to focus on good nutrition and exercise — reveal that they are a core driver of Herbalife’s pyramid scheme,” Ackman’s Pershing Capital said. 

Herbalife dismissed the claims, saying “Ackman’s theatrics are increasingly desperate”.

It said it’s proud of the role nutrition clubs play in “helping people lose weight and stay healthy”.

We shall see if Ackman’s bombshell is a killer or a dud. 

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RA

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