Herbalife Ltd. (HLF) Hammered Again, Ackman’s Four Pillars of a ‘Pyramid Scheme’

Yesterday, we discussed the jaw-dropping fall of Herbalife Ltd. (NYSE:HLF), which had lost over 12% due to allegations from Bill Ackman, manager of Pershing Square Capital, that the nutritional products company was a “pyramid scheme.” In our coverage, we also mentioned what Herbalife’s CEO, Michael Johnson, had to say about the claims, calling Ackman’s tactics “blatant market manipulation,” adding that “we want the SEC to take action.” Here’s the full recap of the drama.

Here’s a look at Herbalife’s movement, which as you can see, has been quite drastic over the past two days. Shares had already been on a bit of a downswing since mid-October, but it’s clear that investors are fearful of these latest developments.

In Michael Johnson’s interview with CNBC yesterday, the Herbalife CEO mentioned that “an extraordinary number of puts on our stock were due to expire this Friday [tomorrow],” and suggested that “Mr. Ackman suddenly announces he will make a presentation on Herbalife on Thursday, the day before the puts expire.” It’s pretty easy to see where Johnson was going with this, so what did Ackman have to say in his short thesis today at the Sohn Conference?

Well, to the surprise of most permabears, Ackman didn’t offer up any groundbreaking revelations, but did mention that he was not an owner of any put options on Herbalife, according to Barron’s. So, it appears that Ackman’s short position isn’t as nefarious as most were led to believe yesterday, only that he sees fundamental flaws with Herbalife’s business model.

There are four main pillars that include…