Pyramid Schemes

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.

Four Kentucky residents have been sentenced to prison and ordered to reimburse a church they bilked out of nearly $200,000 in what prosecutors described as a classic pyramid scheme. U.S. District Judge Joseph R. Goodwin acknowledged that most of the four defendants have few, if any, assets left to repay the First Assembly Church of God of Matewan, W.Va. The Matewan church said it invested $199,800 with John S. Holtzclaw and three other Kentucky residents.

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.

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.

At least 50,000 Belgians have fallen prey to fraudulent high-yield "pyramid" investment schemes in the past two years and lost more than $160 million, court officials said. "The numbers are very realistic but could rise further," said a spokesman for the prosecutor's office in the northern town of Dendermonde. Dozens of people are under investigation or facing charges over fraudulent pyramid schemes, the spokesman said. But he was unable to say how many people would be prosecuted.

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.

NEW YORK - It's no longer just a war of words. Corporate raider Carl Icahn has thrown $214 million behind Herbalife Ltd., the Los Angeles-based maker of health foods and nutritional supplements accused of being a pyramid scheme by Icahn's foe, fellow Wall Street tycoon Bill Ackman. Documents filed with the Securities and Exchange Commission on Thursday reveal that Icahn purchased more than 14 million shares and options in Herbalife, a nearly 13% stake that would make him the company's second-largest investor.

Herbalife Ltd. shares rose after a profanity-filled battle on live television between two billionaire investors with vastly different views of the Los Angeles company. Bill Ackman, who has an enormous short position on Herbalife and has called the company a pyramid scheme, and Carl Icahn, who reportedly has a long position on the company, traded personal insults during a nearly 30-minute telephone discussion aired live Friday on CNBC. Icahn called Ackman a "liar" and said: "He's got one of the worst reputations on Wall Street.

Herbalife Chief Executive Michael Johnson was tired of a powerful hedge fund manager bad-mouthing his company. So he put on a show Thursday before hundreds of investors at the Four Seasons hotel in Manhattan, rebutting claims that the Los Angeles nutritional supplement company is a pyramid scheme. The presentation accused hedge fund giant Bill Ackman of lies and snobbery, compared Herbalife to the Girl Scouts and featured the company's president entreating that "the world needs more hugs.

Hedge fund Third Point took an 8.2% stake in Herbalife Ltd., becoming the latest firm to bet against hedge fund manager Bill Ackman, who has accused the direct seller of nutritional products of being a pyramid scheme. Third Point, which had about $10 billion under management and is run by financier Daniel Loeb, has purchased 8.9 million Herbalife shares, according to a filing with the Securities and Exchange Commission. Herbalife is fighting allegations made by Ackman, the founder of Pershing Square Capital Management, that it uses inflated pricing, misleading sales information and a complicated incentive structure to hide a pyramid scheme.

Shares of Herbalife Ltd. got pounded for a fourth straight trading day on Wall Street, as investors sent the stock diving an additional 5% on Monday. The Los Angeles-based marketer of nutrition powders, bars and vitamins has seen its stock price plummet since New York hedge fund manager Bill Ackman last week called the company's business a pyramid scheme. Its shares have lost about 40% since Ackman lodged his allegations. After falling as much as 10% early Monday during Wall Street's abbreviated Christmas Eve session, the company's shares were trading midway through the session at $25.83, down $1.44, or 5.3%, from their closing price Friday.

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.

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.