Pershing Square Capital Management sought to pour cold water on Herbalife's fourth-quarter results announcement with a Web site trumpeting the company's links to a Canadian pyramid scheme.
New York-based Pershing Square has a $1 billion short bet against Herbalife, arguing that it is a pyramid scheme itself. The new Web site, herbalifepyramidscheme.com, offers a profile of Shawn Dahl, a former Herbalife distributor and founder of Online Business System, a lead-generation business.
OBS and its predecessor business, Global Online Systems, recruited salespeople for Herbalife for nearly a decade after GOS was convicted of running an illegal pyramid scheme. Herbalife moved to distance itself from OBS only last year, eventually ending the sale of leads to or by its distributors. Dahl resigned as a Herbalife Chairman Club distributor over the summer.
Herbalife's links to OBS were first reported by the Financial Times in August.
"While Herbalife has attempted to distance itself from Dahl recently, the company cannot escape liability for participating in Dahl's deceptive and destructive conduct for a decade," Pershing Square wrote. The hedge fund said that Dahl was only the first in a series of "Herbalife wrongdoers" that it will profile on the Web site.
Pershing Square lost hundreds of millions on its Herbalife short last year, as the company's share price more than doubled. Herbalife yesterday announced it would increase its stock buyback program by one-third to $1.5 billion, financed by $1 billion in new debt.
Herbalife shares have fallen 20% this year, in no small part due to Sen. Edward Markey's push for an investigation into the company. One of the regulators he's leaned on, the Federal Trade Commission, appears to be listening. FTC Chairwoman Edith Ramirez will meet with minority and consumer activists tomorrow.
"Our main message is that Herbalife is defrauding hundreds of thousands of people in the U.S. every year, and the FTC must act to protect our communities from further abuse," League of United Latin American Citizens executive director Brent Wilkes said.