Australian billionaire hedge fund manager, Bill Ackman, has accused Herbalife (NYSE:HLF) of running a pyramid scheme, and has threatened to take out a billion dollar bet against the global nutrition company share, should in case the price falls. He points out that they possess fake customers and are coaxing them into buying the mini pyramid scheme.
In response, Herbalife has denied any wrongdoing, and for the most part, pointed out that most of the distributors (a model that the company follows as part of peer-to-peer sales program) join the company to take advantage of discounts on products that they normally would have purchased. Herbalife, according to Herbalife's Asia-Pacific managing director, William Rahm, does not run a pyramid scheme under any condition and operates on a multi-market level model.
The company is not alone in its battle, as it has the support of rival billionaire hedge fund manager, Carl Icahn, and cereals chief, William Spirits. Australian fund manager, John Hampton, has upped his investment stake to 9% on Herbalife, up from 7%.
The allegations from Mr. Ackman are not entirely new, as the US Federal Trade Commission and the US Justice Department, along with the Federal Bureau of Investigation (FBI) and the Securities and Exchange Commission (SEC), are currently investigating the claims. In addition, the company is also facing court action after US distributors sued it for deceptive marketing practices. In what could set it up as a precedent, the Belgian court appeals ruled that Herbalife was not a pyramid company in 2013.
Mr. Hampton believes that there are some ‘rotten eggs’ in the company that have given a bad name to the organization’s reputation, but overall, he holds positive sentiment about the organization. Nevertheless, that has not stopped the company facing a hit in growth and earnings from bad publicity. Yearly growth rate has gone down from 18% to 3%, even though it managed to beat the quarterly earnings forecast for this year.
Meanwhile, the Los Angeles based nutritional snacks company has announced an expansion of its global corporate affairs team, not necessarily in response to the ongoing allegations, investigations, and bad public press. Three renowned individuals have joined the company, namely: Ric Hobby as senior vice president for global government relations, Megan Jordan as senior vice president for global corporate communications, and Randall Polka as vice president of government and industry affairs. Two present members, Julian Cacchioli and Elaine Pacheco, will take on new responsibilities for the company.
Herbalife Stock price ended the day at $51.35, an increase of 0.55%.
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