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Ackman goes after Herbalife's nutrition clubs

Published on NewsOK Modified: July 22, 2014 at 5:55 pm •  Published: July 22, 2014

NEW YORK (AP) — Activist investor Bill Ackman once again denounced weight loss and nutritional supplements company Herbalife as a pyramid scheme, but Wall Street shrugged off his criticism and sent the company's stock soaring 25 percent Tuesday.

In a three-hour presentation in New York, Ackman's focused on Herbalife's "nutrition clubs," private settings where Herbalife distributors sell the company's products — such as weight-loss shakes — and recruit new members.

Ackman laid out a case that because the clubs run by Herbalife's distributors focus on recruiting instead of selling products, the clubs are by definition a pyramid scheme.

Ackman, who runs Pershing Square Capital Management, an activist hedge fund, has bet heavily against Herbalife by using "short" trades that will be profitable if the price of the company's stock falls. Ackman has been trying to convince other investors to take similar positions, most memorably in a shouting match he got into with Carl Icahn, a rival investor, on live television in January 2013. Icahn has taken the opposite position and has defended Herbalife.

Herbalife has vigorously denied Ackman's arguments, and says it operates like a multi-level marketing company similar to Avon, Amway and Mary Kay.

The company has not been accused of any crime and insists that its operations are legal. The Securities and Exchange Commission, the Federal Trade Commission and the Attorneys General of New York and Illinois are investigating Herbalife, but no charges have been brought against the company since Ackman announced his short position in 2012.

Investors appeared to dismiss Ackman's latest allegations Tuesday and bid up the company's stock. Herbalife shot up $13.75 to $67.77. Trading volume was more than 15 times the daily average. The stock is still down 14 percent this year.

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