Herbalife- Who wants to be a millionaire?

 In December 2012, William Ackman CEO of the $12 billion hedge fund, Pershing Square Capital Management presented claims about Herbalife, publicly in a 3 hour power point presentation. Simply, Ackman claims that Herbalife is a pyramid scheme. Specifically, the CEO Michael Johnson presents consumers with a "business opportunity" to buy and distribute Herbalife products. Herbalife promises buyers they can generate a large income by distributing their products. However, they have to recruit others to join their team in which they pay royalties to the people above them.  It is a continuing cycle. There is more money at the top than at the bottom, and not enough at the bottom to be close to what Herbalife tells its distributors. 

     So here are some of Ackman's claims:

• Herbalife's statement of Average Gross Compensation of U.S. Supervisors and other recruiting materials are materially deceptive. 
• Herbalife distributors experience an abnormally high failure rate
• Taking all expenses into account, including the cost of the "business method" materials  the substantial majority of distributors lose money
• If distributors wish to achieve financial freedom, they must recruit
• Herbalife makes its money of recruitment, not it sales (Pyramid Scheme, if true)

Plenty more of the accusations can be found at http://factsaboutherbalife.com/wp-content/uploads/2012/12/Final-Exec-Summary-1.pdf

• For the record, William Ackman set up this website. The powerpoint he presented and all relevant information he uses can be found here. 

Now, Bill Ackman owns a large stake in the Hebalife. He publicly declared he is shorting the Herbalife stock a billion dollars. Ackman has a target price for the stock of zero, which will in turn shut the company down.

As a result of these accusations, Michael Johnson has fired back. He called for an investor day in which he claims Ackman's data inaccurate and outdated. Furthermore, many other big hedge fund owns such as Daniel Loeb have decided to long the stock. Loeb has an 8.2% stake in the company.  Carl Ichan has also supported Herbalife.  The stock has rose and currently is declining.

In addition, last week Herbalife recalled its nutrition shakes manufactured during a specific timeframe because they may contain trace amounts of milk products, the shakes are supposed to be dairy free.

So here is an image of the stock for the month of February. 

As you can see, the stock has dropped dramatically since the beginning of February. Earlier in February, stocks were down 20% since a recent argument between Ackman and Icahn.  Reutuers reports, "A short squeeze could be particularly punishing for Ackman's Pershing Square, which has shorted some 20 million shares of Herbalife. That accounts for roughly 56 percent of the shares sold short, according to January 15 data released by Nasdaq."(http://www.reuters.com/article/2013/02/06/us-hedgefunds-herbalife-shortsqueeze-idUSBRE9150HC20130206).

Lastly, Herbalife claims Bill Ackman is performing market manipulation. He believes by Ackman going public with these claims, he will legally be able to manipulate the market by a group of short sellers.However in support of Ackman, A Belgium court has ruled Herbalife to be an illegal pyramid scheme. They are appealing. Also, the SEC has stepped in and is closely looking at the information available.