Herbalife Has “Substantial Similarities” To FTC-Targeted Vemma: Ackman

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The Pershing Square presentation also took aim at the fact that distributors are actually hindered from selling products at every turn, in any manner that isn’t deemed to be ‘direct-selling’. Likewise, Pershing Square alleges that distributors are mislead about the margins they’ll be able to clear on the sale of said products, claiming that there essentially are no margins at all in some instances from the price they must pay for the product and the price the products can be found for on marketplaces like eBay Inc (NASDAQ:EBAY). Thus, distributors are all but forced to make their living through recruiting others and perpetuating the cycle.

Much to Ackman’s chagrin no doubt, the market seemed to shrug yet again at his presentation, with Herbalife Ltd. (NYSE:HLF) ending the trading session yesterday up by 0.12%, although it did trend down in the afternoon after the presentation was released, from being up by more than 2% on the day at one point. Herbalife shares are up by nearly 50% year-to-date.

Regardless, it will not be other investors that validate Ackman’s thesis, but the FTC. Ackman clearly believes that Herbalife is indeed an illegal pyramid scheme, and that it exhibits the focus on pushing for recruitment over selling products that the FTC targets. Several other investors clearly don’t believe that to be the case, and have their own money banking on the success of the company. Those investors include Carl Icahn, who holds an even 17.0 million shares as of June 30, and George Soros, who holds 1.97 million shares. The hedge funds we track own 38.60% of Herbalife’s shares.

Only time will tell who’s right, but one thing we know for certain is that this intriguing story is far from over.

Disclosure: None

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