Is Herbalife A Ponzi Scheme? Bill Ackman Claims It's A Pyramid Scheme, But Stock Rises

Bill Ackman
Bill Ackman made a presentation against Herbalife on Monday but investors didn't seem to notice. Reuters

Bill Ackman, the founder and CEO of Pershing Square Capital Management, has been an outspoken crusader against Herbalife Ltd. (NYSE:HLF) for years now, and Tuesday he promised to deliver a “deathblow” to the company -- except his presentation bombed and left the diet-shake seller untouched, Forbes wrote.

Herbalife CEO “Michael Johnson is a predator,” Ackman said from a Manhattan stage as tears welled in his eyes. “This is a criminal enterprise.” The activist called Herbalife a $24 billion “scam.”

Bill Ackman Bill Ackman has taken a stand against Herbalife.  Reuters

“The fraud is affecting more and more people,” Ackman said. “It is time to shut the company down.”

Except Ackman’s presentation didn’t dissuade investors, Forbes wrote.

Herbalife’s shares rose steadily after Ackman began his tirade at 10 a.m. It increased by 8 percent to $58.40 in the first hour of the presentation and was up 11 percent to $60 in the second hour. By 1:07 p.m., the stock was up 15 percent to $62.22, which led Ackman to suggest Herbalife had been repurchasing shares.

Herbalife CFO John DeSimone told CNBC during a Tuesday interview Ackman’s “bark is always worse than his bite.”

As a response to Ackman’s presentation on nutritional clubs, Herbalife said Ackman actually “highlighted” many of the reasons those associated with it are proud of the company:

  • “Herbalife is first and foremost a company with great products that people want.”
  • “There are hundreds of thousands of members and millions more consumers who choose Herbalife for our products and community-based approach to health and wellness.”
  • “There is a comprehensive training system for members who aspire to open their own nutrition club so that they are fully informed of the time, commitment and skills required to do so.”

Herbalife Herbalife is touted as a weight management company.  Reuters

“Bill Ackman has over-promised and underdelivered on his $1 billion bet against our company,” Herbalife said in an official statement. “We will continue to focus on our mission of bringing good nutrition and economic opportunities to communities across the globe.”

In the past, Ackman has said Herbalife “is the best-managed pyramid scheme in the history of the world” and he doesn’t think many retail sales are happening at all. The weight management company, however, combated  his claim, saying Ackman’s claims are  “completely false and fabricated.”

Ackman has been on a mission to prove protein shake company is a Ponzi scheme for years. The company, which sells food and skincare products, has long been denounced by the hedge fund manager as a pyramid scheme. He says the company’s goal is not to sell its products, but to have other people buy a “business opportunity” and then have them sell its products to their friends who will then, in theory, sell it to their friends. 

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