Ackman Says Herbalife Lying, Breaking The Law

Jan 2 2014 | 1:20pm ET

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.


In Depth

'Smart Beta' Funds In Regulators' Sights, Hedgies May Be Next

Mar 26 2015 | 11:11am ET

Funds that mimic strategies used by active managers for a fraction of the cost could...

Lifestyle

Study: Both Marriage and Divorce Lead to Negative Hedge Fund Performance

Mar 25 2015 | 6:51pm ET

Trouble at home leads to trouble in the market for fund managers, according to researchers...

Guest Contributor

The Life Settlement: Yield For The Investor And Cash For The Consumer

Mar 31 2015 | 6:48am ET

Investors are languishing in a yield-starved, low-interest rate environment, looking...

 

Sponsored Content

    Mar 9 2015 | 6:35am ET

    Kelly RodriquesKelly RodriquesAs more investors look to diversify, many are beginning to use retirement funds to invest in alternative assets such as private equity and real estate. Kelly Rodriques, CEO & President of PENSCO Trust Company, explains how companies can connect with those looking to use their retirement accounts in a different way. Read more…

Editor's Note