William Ackman and Pershing Square Capital Management have released another presentation backing Ackman's claim that Herbalife Ltd. (NYSE: HLF) is indeed a pyramid scheme. This time Ackman compares Herbalife to Fortune Hi-Tech Marketing, a multilevel marketing company that has been charged by the Federal Trade Commission (FTC) with operating an illegal pyramid scheme and falsifying earnings.
The latest presentation from Ackman offers a side-by-side comparison between Fortune and Herbalife, which lifts bits of reports and findings about Fortune and attempts to demonstrate how these accusations apply to Herbalife. The presentation does not include a summary or narrative, and it is a little difficult to follow. Ackman includes documentation that he believes supports his view.
Yesterday a consumer group, the National Consumers League (NCL), sent a letter to the FTC requesting that the agency initiate an investigation into Herbalife, saying that Ackman's claims suggest that "Herbalife's business practices may run afoul of many of the 'red flags' of pyramid scheme activity in NCL's guide."
A third intervention came in the form of a lawsuit filed by a New York attorney, who wants the federal court to prevent Bank of America Corp. (NYSE: BAC), J.P. Morgan Chase & Co. (NYSE: JPM) and Wells Fargo & Co. (NYSE: WFC) from providing $1.2 billion in financing for Herbalife. In a separate lawsuit, the attorney asks the court to force activist investor Carl Icahn to pay damages and divest his stake in Herbalife on the grounds that Icahn is aiding the alleged fraud. The attorney is a shareholder in the banks and claims they are breaching their fiduciary responsibility to him by not withdrawing the financing to Herbalife. The attorney also holds a short position in Herbalife.
More heat, but more light? Maybe, but the continuing pressure on the FTC works to Ackman's advantage. If the FTC agrees to investigate Herbalife, the shorts are in line for a nice payday.
Ackman's new presentation on Herbalife is available here.
Herbalife's shares are trading down about 1.5% this morning, at $38.33 in a 52-week range of $24.24 to $73.00.
Filed under: 24/7 Wall St. Wire, Activist Investor, Food, Regulation Tagged: BAC, featured, HLF, JPM, WFC