Activist investor Bill Ackman said yesterday in a webcast that ran for over two hours that nutrition and weight-loss company Herbalife Ltd had violated direct-selling laws in China. Ackman reportedly launched an investigation to the Cayman Islands-based company's operations in China and his firm, Pershing Square Capital Management LP, tapped OTG Research for the probe, Bloomberg said.
According to the results of the probe, Herbalife's unit in China had been paying people illegally based on the number of recruits that they get. Moreover, Herbalife's hourly consulting pay was allegedly the key that would show the nutrition company violated direct-selling laws in China.
"They defraud millions of people. Their portrayal of their China business in their SEC filings is materially false and misleading," Ackman said during the presentation.
In a response to Ackman's latest claims against the company, Herbalife issued a statement, which read, "Herbalife remains confident in its business in China, which is built on customers enjoying and benefiting from our nutrition products each and every day. We will continue to invest in this important market and collaborate with the Chinese government to deliver high-quality nutrition to the Chinese consumer through lawful direct selling practices. The presentation reflects Mr. Ackman's continued failure to fundamentally understand Herbalife's business model."
Bloomberg said the probe by Ackman's Pershing is the latest condemnation of Herbalife by Ackman. Herbalife is known as a vitamins, skin creams and meal-replacement shakes maker, of which Ackman claimed that its operations is one big pyramid scheme. Herbalife has since denied Ackman's claims.
In December 2012, Ackman revealed that his firm had short-sold over 20 million of Herbalife's shares in the company. The news agency said this means that should Herbalife decline, Pershing stands to gain. Ackman said in the presentation that investors of Pershing could gain $2 billion should the nutrition company fold up today. Bloomberg said two-thirds of Ackman's firm's investment in Herbalife is in options.
