A battered but unbowed William Ackman ended 2013 in much the same way he began it: attacking nutritional supplements company Herbalife.
The Pershing Square Capital Management founder announced a $1 billion short against Herbalife in December 2012, calling the company a pyramid scheme. Despite the allegations, Herbalife shares soared last year, leaving Pershing Square nursing a $500 million paper loss. Still, the setbacks have not daunted Ackman, who promised to expose new flaws in Herbalife's business model shortly.
In a letter to investors on Dec. 23, Ackman brushed off PricewaterhouseCoopers' reaudit of Herbalife's books, saying the company "is not an accounting fraud" but a "business opportunity fraud that relies on deception." And one such deception, according to Ackman, was Herbalife's end in June of is lead-generation recruiting methods. Ackman said the practice of selling recruit names to newer distributors "continues to this day."
The hedge fund manager also alleged that Herbalife's Chinese operation "likely violates the multi-level marketing restrictions in that market."
"We continue to believe that our Herbalife short position offers an extremely compelling, and, as now structured, even greater asymmetric payoff than before because of the stock price's substantial rise…. The Herbalife bulls are unlikely to be swayed by anything other than the public disclosure of regulatory action against the company."
Despite its own substantial losses on Herbalife, Pershing Square managed to return more than 10% last year.