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Hedge fund manager Bill Ackman steps up campaign against Herbalife

February 07, 2013|By Stuart Pfeifer
  • A hedge fund manager has come up with a 40-page list of questions about how the Los Angeles nutrition company Herbalife does business.
A hedge fund manager has come up with a 40-page list of questions about how… (Patrick T. Fallon / Bloomberg )

Hedge fund manager Bill Ackman is stepping up his attack against Herbalife Ltd., releasing a 40-page list of questions about how the Los Angeles nutrition company does business.

Ackman, whose Pershing Square fund has a $1-billion short against Herbalife’s stock, has been campaigning against the company for nearly two months. He contends Herbalife is a pyramid scheme in which the vast majority of its independent distributors make little or no money while a scant few get rich by collecting commissions from people they recruit into the business.

On Thursday, Ackman released a list of more than 270 questions for Herbalife executives. The questions – posted on Ackman’s anti-Herbalife website – focused on many aspects of the company's business, from the serving size of its meal-replacement shake mix to whether it is complying with a 1986 injunction obtained by the California attorney general  that prohibits the company from paying commissions for recruiting.

“Herbalife executives have repeatedly committed to having a fact-based conversation and total transparency about Herbalife’s business,” Ackman said in the beginning of his open letter to the company. “Pershing Square would welcome responses to the following questions.”

Herbalife released a statement that did not address any of Ackman’s questions specifically.  

“Herbalife is a financially strong and successful global nutrition company, having created meaningful value for shareholders, significant opportunities for distributors and positively impacted the lives and health of consumers since our founding in 1980,” Herbalife said in a statement. “Pershing Square's latest tome is motivated by a reckless $1-billion short bet.” 

Herbalife has denied Ackman’s previous allegations, contending that all of the commissions it pays are based directly on sales.

A California attorney general's spokeswoman declined to say whether the office was investigating Herbalife. Earlier this week, the Federal Trade Commission disclosed that it has received more than 100 complaints about Herbalife in recent years. That agency also declined to say whether it was investigating.

A significant portion of Ackman’s questions focused on commissions distributors receive when people they have recruited into the business purchase Herbalife products.

For instance, Ackman asked, because Herbalife does not track retail sales, only sales to its independent sales force, how is it possible to award sales-based commissions?

Other questions targeted a $15-million bonus paid to a scientist who has promoted Herbalife products and marketing that implies Herbalife distributors can become millionaires by selling its vitamins, powders and drinks, when about 90% of them make little or no money.

Herbalife shares gained about 0.4% on Thursday.


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