Herbalife denies Bill Ackman 'pyramid scheme' accusations
Herbalife has denied comments from billionaire hedge fund owner Bill Ackman that the diet supplement group is fronting an elaborate pyramid scheme.
Ackman bet $1bn against Herbalife in 2012
Earlier today billionaire Bill Ackman, head of hedge fund Pershing Square Capital Management, which spent $50m investigating Herbalife’s practices, said he was determined to expose the company’s “incredible fraud”.
Ackman, who aims to "destroy" the seller of supplements and weight loss shakes, said Herbalife misleads distributors, misrepresents sales figures and sells a commodity product at inflated prices. He then likened Herbalife’s commercial structure to that of Enron before its collapse.
A Pershing Square presentation shown this afternoon, read: “An in-depth analysis and examination of these clubs - which Herbalife claims are simply social gatherings that bring people together to focus on good nutrition and exercise - reveal that they are a core driver of Herbalife’s pyramid scheme.
Herbalife, which sponsored football giants Barcelona FC at the height of its worth in 2012, called Ackman’s accusations “desperate” before releasing a report written denying the accusations.
The report stated: “For those who choose to participate, the Herbalife business opportunity offers a reasonable prospect of operating a financially successful business.”
It claims that members can make a profit from reselling the products and that low participation costs aid resell profitability.
Additionally, it estimated that a third of "individuals eligible for performance payments with one or more members in their downline earned at least $1,000".
A further seven per cent reportedly earned at least $10,000.
It concluded that Herbalife is “primarily funded out of retail-based product sales [and is] classified as a legitimate MLM, Herbalife’s U.S. business operations constitute an MLM and not a pyramid scheme”.
After the accusation on Monday, Herbalife shares fell by 11.6 per cent to $54.02, a large drop in the brand’s value which is now 31 per cent lower than at the same point last year.