A consumer advocacy group has called on the Federal Trade Commission to investigate the business practices of Herbalife Ltd., a Los Angeles nutritional products company that’s been described as a pyramid scheme by hedge fund manager Bill Ackman and others.
Ackman made his case to Wall Street in December, arguing that the company is a fraud because most of its distributors make no money while a select few -- at the top of the pyramid -- get rich from commissions based on sales of those they recruit into the business.
Herbalife, in business since 1980, sells meal-replacement shake mixes, protein bars, vitamins, and skin and hair products through a network of independent sales people in more than 80 countries. The company said most of its sales people do not intend to make a living selling the products, but instead become distributors to get discounts on products they personally consume. Ackman’s claims, the company said, are motivated by greed and an effort to manipulate its stock price.
Sally Greenberg, executive director of the National Consumers League, said in a letter Tuesday that it’s difficult for consumers to determine whether to believe Ackman, whose firm, Pershing Square Capital Management, has a $1-billion bet that Herbalife’s stock price will fall, or the company, which is in the fight of its life.