Herbalife Ltd. (NYSE:HLF) has fallen close to 10% in value since December 19th, when reports first surfaced that Bill Ackman, manager of Pershing Square Capital, was shorting the stock, believing its business to be a pyramid scheme. On the accusations, Herbalife's CEO Michael Johnson had called it "blatant market manipulation" (see Herbalife CEO Wants SEC to Take Action Against Ackman).
Since Christmas Eve, shares of Herbalife have gained over 40%, and now rest above the $38-mark for the first time since Ackman's initial claims surfaced. It's worth noting that the stock is still roughly nine-tenths of its original value, but the recent recovery has been a welcoming sign for investors who were initially floored by news of the hedge fund manager's short position.
Over the past few weeks, Herbalife has taken several steps to strengthen its position against Bill Ackman and Pershing Square, who have interestingly said that “[w]e welcome the SEC looking at our books." In Ackman's original presentation last month, which detailed his allegations against Herbalife, he mentioned four distinct pillars of a pyramid scheme. In our original recap, we found that they include: "(1) questionable R&D practices, (2) mentions that Herbalife buys their credibility, (3) the assertion that around 90% of payments are incentive-based, and (4) evidence of bubble-like trends in multiple countries." (See the full details of the presentation here).
So what is Herbalife Ltd. (NYSE:HLF) doing in defense?