Consumer Group Pushes For Herbalife Probe

Mar 13 2013 | 1:42pm ET

Pershing Square Capital Management has won a major ally in its battle against nutritional supplements company Herbalife.

The National Consumers League yesterday asked the Federal Trade Commission to open an investigation into Herbalife. Pershing Square's William Ackman has also pushed for a probe, arguing that the FTC will discover the Herbalife is a pyramid scheme and that its stock is worthless.

The NCL said the competing claims about Herbalife risks confusing consumers, and that the FTC could clear the matter up with a look at the company.

"It is difficult for the typical consumer, and even for the National Consumers League, which has expertise in this area, to weigh these conflicting claims," Sally Greenberg, the group's executive director, wrote. "This necessitates an investigation of the kind that the FTC is well-equipped to conduct."

Ackman opened a $1 billion short position in Herbalife in December, when he announced his belief that the company is a pyramid scheme. The dispute also reawakened Ackman's long-running fight with Carl Icahn, who promptly made a big investment in Herbalife and announced that the company presented a compelling opportunity.

Herbalife decried the NCL's intervention.

“We regret that the National Consumers League has permitted itself to be the mechanism by which Pershing Square continues its attack on Herbalife," the company wrote. "If anything, it is Pershing Square that should be investigated by appropriate authorities.  Its actions are motivated by a reckless $1 billion bet against the company based on knowingly false statements about Herbalife.  Those statements unquestionably cause harm to our consumers and investors and indeed all consumers and investors."

The company was backed by the Direct Selling Association.

“I respect NCL and hope that this letter to the FTC will not be used by short sellers to distort the truth about the value of direct selling to millions of Americans," DSA President Joseph Mariano said. "Based on the track record of misstatements of facts and the law by these same short sellers, my concern is for the harm that could be caused to hard working direct sellers as well as consumers who could be negatively impacted by these actions."

"Herbalife is a longstanding member of the Direct Selling Association and is subject to the provisions of a strict code of ethics designed to ensure direct sellers practice only the highest standards of business ethics. By virtue of their DSA memberships, Herbalife and the other 181 DSA member companies have consistently committed themselves to meeting or exceeding not only the requirements of the law, but also the rigorous DSA Code of Ethics."

Ackman, by contrast, couldn't help but crow in his own press release.

"We are pleased that the National Consumers League, the nation's oldest and one of the most respected consumer protection organizations, has requested that the FTC launch an investigation of Herbalife," he said. "We believe that a thorough investigation of Herbalife will reveal it to be a pyramid scheme that has harmed millions of consumers in more than 80 countries around the world."

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