Legendary short-seller Jim Chanos, the founder of Kynikos Associates, told Bloomberg TV’s Trish Regan that he wouldn’t invest in Herbalife.
Chanos, who said he doesn’t “have a dog in the Herbalife hunt”, is a big sceptic of the multi-level marketing model.
“I think any business that’s dependent ultimately on pulling the wool over your customers whether its the distributors who take on more product than they can sell or the customers who are being sold product at two to three times than what’s available down the street I think is a unstable long term business model that I wouldn’t want to invest in. Whether you want to short it or not is another issue,” he said.
“When you’re in the business, in effect, of fooling your customers and your salesforce you don’t have a really sustainable business.”
Herbalife is a multi-level marketing firm that sells nutrition products. It has become one of the most controversial stocks in the market because it’s in the middle of a huge hedge fund war.
On the bearish side, hedge fund manager Bill Ackman, the CEO of Pershing Square, is shorting more than 20 million shares with a price target of zero because he believes the company is a “pyramid scheme”.
On the long side, there’s hedge fund hot-shot Daniel Loeb, the founder of Third Point LLC who disclosed an 8.24% stake, and Ackman’s long-time rival Carl Icahn, who has a 12.98% stake.
Watch the Chanos’ interview in the video below:
Now Watch: How Herbalife Became A Battleground Stock For Two Wall Street Heavyweights