The drama between Bill Ackman and nutrition-products distributor Herbalife (HLF) heated up Tuesday as the billionaire activist's hedge fund, Pershing Square, unveiled its latest webcast, "American Dream Denied," reinforcing Ackman's allegations of an alleged pyramid scheme.
Ackman's battle with Herbalife originated when he disclosed a roughly $1 billion short position in the firm in 2012, criticizing its compensation plan and what he viewed as predatory and deceptive business operations.
The two subsequently entered into a protracted feud, in which Ackman doubled down on his claims the company misleads its employees with false promises, while Herbalife derided Ackman as "a Wall Street gambler who placed a reckless $1 billion short bet." Real Money has reported on potential problems with Ackman's challenge.
Two federal investigations were ultimately launched into Herbalife's compensation system and business model, as well as into whether Ackman unfairly attempted to weigh down the company's share price with distorted information in order to profit on his bearish position.
As Real Money reported, it now appears the probes are coming up empty-handed, which has likely prompted Ackman's latest swing at the firm.
Tuesday's webcast was posted on factsaboutherbalife.com, accompanied by a cartoon presentation titled, "How to Spot a Pyramid Scheme," and a ticker that reads, "1 distributor drops out of Herbalife every 16.7 seconds. Since 2013 alone, 5,870,091 distributors have dropped out."
The video, subtitled, "Herbalife Victims Speak Out," is set against a black backdrop, with former product distributors rehashing promises made to them for "big checks," grueling hours, and claiming Herbalife is a pyramid scheme, defined by employees earning more from recruiting than from selling products to customers.
The first distributor discusses losing $32,000 to $36,000 while at Herbalife over a roughly three-year period. Others said they were pressured to quit their regular jobs, and questioned the legitimacy of Herbalife's disclosure policy, alleging the company did not distribute a required form stating that 89% of distributors fail to turn a profit.
Pershing Square also released a news release as a preview to the webcast, alleging that Herbalife operates a systematic business of "predatory" deceit.
"Herbalife has attempted to convince regulators, elected officials, and the public that it has cleaned up its act and made substantial improvements to its business model," the hedge fund said.
"But the stories of Herbalife distributors show that millions of people are still being harmed by the company every day," according to the release. "The changes the company has made do not impact Herbalife's pyramidal compensation plan or the predatory practices Herbalife uses to deceive aspiring entrepreneurs."
