Pyramid Scheme

The California attorney general's office believed that FundAmerica, Inc. was running a pyramid scheme as early as September, 1988--nearly two years before Florida authorities filed criminal charges against the company--but it never took formal action against the Orange County marketing company, according to a letter obtained by The Times on Thursday.

Rep. Linda T. Sanchez asked regulators to investigate allegations that Herbalife Ltd. operates a well-disguised pyramid scheme that victimizes "our country's most vulnerable populations. " The Lakewood Democrat said in a letter to the Federal Trade Commission that she was "troubled that this company may be harming consumers," noting allegations that Herbalife's independent distributors are compensated more for recruiting new distributors than for sales. Herbalife is a Los Angeles nutritional products company that sells weight-loss shake mixes, vitamins, protein bars and other such items through independent salespeople, or distributors, who profit from their sales and from the sales made by others they recruit into the business.

Hawaii state prosecutors said Wednesday they are investigating an Orange County company to determine if its sales of how-to kits to would-be travel agents constitute an illegal pyramid scheme. In addition, World Class Network in Irvine faces a securities probe by another Hawaii agency to determine if it is selling unregistered securities in the form of distributorships.

Herbalife Ltd. shares gained 4% and traded part of Monday above the price they were when hedge fund manager Bill Ackman first accused the Los Angeles nutritional products company of operating a long-running pyramid scheme. The company's stock price plummeted Dec. 19 after Ackman publicly disclosed that he had taken a $1-billion short position against its shares. In the four trading days after Ackman's announcement, the stock fell 43%, reaching an intra-day low of $24.24 on Christmas Eve. Taking a short position involves borrowing shares at a high price and selling them, expecting to repurchase them later when the price falls and thus profit from the decline in stock prices.

With its three-day stock plunge accelerating Friday, Herbalife Ltd. said it will defend itself against a hedge fund manager's accusations that the business is a “pyramid scheme” - but the company said its response won't come until next month. The Los Angeles maker of nutritional products said Friday that it will wait until the week of Jan. 7 to host an event for analysts at which it will respond to the “distorted, outdated and inaccurate information” alleged by moneyman Bill Ackman.

With investors punishing his company's stock for a third consecutive day, the top executive of Herbalife Ltd. sought to reassure shareholders Friday that his company is not a pyramid scheme. Working from the firm's tony headquarters in downtown Los Angeles, Herbalife chief Michael Johnson telephoned institutional investors, including fund managers at Fidelity, disputing highly publicized criticism from prominent New York hedge fund manager Bill Ackman. Johnson also assembled a team of about a dozen top company officials to prepare a point-by-point defense against Ackman's assertions that Herbalife is a "sophisticated pyramid scheme" whose independent sales associates make more money recruiting new distributors than actually selling products.

A woman was sentenced to 12 years in state prison Friday and her stepfather was given five years' probation for operating an elaborate pyramid scheme that stole more than $2.5 million from working-class Latino families throughout Southern California. Joan Frederick, 30, and Felix Navarrete, 70, were found guilty in October of grand theft and operating an "endless chain scheme" for nearly two years through a telecommunications company called La Luz de Oro (or, Light of Gold).

The Securities and Exchange Commission is seeking to shut down a network of 25,000 websites, accusing operators of running a $15-million pyramid scheme that promises to shower participants with easy cash. Prosperity Automated System, which bills itself as a marketing network, "is destined to collapse and leave the vast majority of investors with substantial losses," the SEC said Wednesday. The complaint targets the network and its creator, William M. Osterhout of Citrus Heights, Calif.

A man and his wife were charged Wednesday with taking $1,500 from two other couples in an illegal pyramid scheme run out of their home, authorities said. Rafael Lopez, 40, and Sandra Lopez, 46, were charged with four counts each of grand theft and one count each of operating an endless chain scheme, said Keith De La Rose, the deputy city attorney prosecuting the case. Each count is punishable by up to one year in jail and a $1,000 fine, he said.

Things are starting to get personal in the battle between hedge fund manager Bill Ackman and Herbalife Ltd., the Los Angeles nutritional products company he's accused of operating a long-running pyramid scheme. Herbalife spokeswoman Barbara Henderson said today that Ackman is making false allegations about the company because he's “increasingly desperate to distract the market from focusing on his J.C. Penney disaster.” Ackman's Pershing Square Capital Management owns nearly 18% of struggling J.C. Penney, which has seen its stock drop 12% this year.

Herbalife Ltd. said its feud with billionaire hedge fund manager Bill Ackman has been more costly than it anticipated, prompting speculation that the company is bracing for potential government investigations. The Los Angeles nutritional products company estimates it will spend $25 million to $40 million this year on legal and advisory fees to defend itself against Ackman's allegations that the company runs a pyramid scheme in which most of its independent salespeople lose money.

Los Angeles nutritional products company Herbalife Ltd. reported $1.1 billion in first-quarter sales and profit that soundly beat analysts' expectations and its own guidance. The company reported earnings of $118.8 million, or $1.10 a share, up from $108.2 million, or 88 cents, in the same period last year. The company had forecast earnings of $1.03 to $1.07 a share. Herbalife said revenue was $1.1 billion, a 17% increase from the same period last year. The company has beat analysts' earnings estimates for 17 consecutive quarters.

Herbalife Ltd. has now notched 17 consecutive quarters in which its profits sailed past Wall Street projections. The Los Angeles nutritional products company told investors Monday that earnings during the first three months of the year climbed nearly 10% to $118.8 million while sales hit a record $1.1 billion. Top executives will host a call with analysts to discuss the results Tuesday morning. Despite the impressive numbers, executives will have plenty of questions to answer.

Herbalife Ltd., battling a billionaire investor's bet that its stock will tank, is expected to reassure shareholders at the company's annual meeting Thursday that the Los Angeles nutritional products maker is a strong, healthy, legitimate operation. The meeting at the Beverly Hilton comes amid lingering questions about Herbalife's future. For several months, two activist investors have put the company's core operation at issue. Bill Ackman has bet $1 billion that the company is a pyramid scheme that will fail, and Carl Icahn bought 15% of Herbalife's stock, wagering that its business is legally sound and will withstand Ackman's attack.

This was the last thing Herbalife Ltd. needed. Just as the Los Angeles company appeared to be regaining its footing from a Wall Street hedge fund manager's assault, the company's auditor resigned abruptly because of an alleged insider-trading scandal. Accounting giant KPMG said Tuesday that Scott London, its chief Southern California auditor, had divulged financial information about Herbalife to a friend who then used those secrets to gain an edge in the markets. KPMG fired London, who had supervised Herbalife's audits, and withdrew its approval of the company's financial statements.

Herbalife Ltd. announced an agreement with billionaire investor Carl Icahn, who owns more than 13% of Herbalife's stock, that will allow him to add two members to its board and give him the right to increase his holdings to one-quarter of the company's shares. Trading in the company's stock was halted in advance of Thursday's announcement, then took off after the freeze was lifted. Herbalife shares were up $2.19, or 5.8%, at 37.44 Thursday morning. “We are pleased to have reached this agreement and look forward to working with the Icahn representatives as members of our board of directors,” Herbalife Chairman and Chief Executive Michael O. Johnson said in a statement.

Herbalife Ltd. had some good news - and a little bad - as the nutritional products giant released its fourth-quarter results. The good: Sales of its weight-loss and nutritional products increased 20% to $1.1 billion in the quarter, and profit surpassed Wall Street's projections. And the company expects 2013 to be even better. The bad: Herbalife could spend $10 million to $20 million this year in "legal and advisory services" to fend off allegations made by a Wall Street hedge fund manager that it is operating a pyramid scheme.