Hedge fund manager Bill Ackman, who runs Pershing Square, is giving a presentation on Herbalife.
This time it’s on Herbalife’s business practices in China.
Pershing Square says they have done an investigation and that they have evidence that the company is operating in violation of Chinese law.
“The report will show that Herbalife’s business in China operates much like the company’s business in the rest of the world — as a pyramid scheme,” Pershing said in a press release.
NYTimes’ Front Page Article
First off, he’s addressing yesterday’s New York Times front page article. The article was about Ackman lobbying folks to help him bring about an investigation into Herbalife that would bring down the company.
Beginning in the summer of 2013, Ackman said that he and his legal counsel went to Washington D.C. to meet with lawmakers. He said they did it to raise the profile of Herbalife and the increase the chances that the FTC would investigate.
Ackman points out that he has the right to petition the government and to free speech. He said the law requires him to hire lobby firms if he spends more than a certain amount of hours lobbying congress.
Ackman says that he and his senior counsel David Klafter met with Senator Markey (D-MA)’s staff. His staff suggested they meet with the senator, Ackman said.
He said they told the staff that they were short the stock and he would give any profits he made to charity.
In February, Markey put out three letters to Herbalife CEO Michael Johnson, the SEC and the FTC. The stock dropped after the letters.
Ackman says he’s never given any money to Markey. He says he’s been a larger supporter of the Democratic Senatorial Campaign Committee, though.
What’s more is Ackman says he just learned that his sister had donated $US500 to Markey. He said he had no prior knowledge before the NYTimes article.
China Business Practices
David Klafter, Pershing’s legal counsel, is going over Herbalife’s presence in China since 2001. China has strict laws for direct-selling.
Klafter alleges that Herbalife’s violates China’s direct selling and pyramid sales laws. He says Herbalife incentivizes Herbalife distributors to recruit “potentially infinite downline in order for Distributors to reap sales based consulting fees.”
Aaron Smith-Levin, a researcher from OTC Research Group, said their staff in China met with over a dozen distributors there to gather their findings.
In late 2012, at a special Sohn Conference event, Ackman publicly declared that Pershing Square was shorting $US1 billion worth of Herbalife stock. In a 342-slide presentation, Ackman laid out his thesis that the company operates as a “pyramid scheme” that targets lower income individuals, particularly from the Hispanic population.
It’s his belief that regulators, specifically the Federal Trade Commission, will be persuaded to investigate and shut the company down.
Herbalife has denied Ackman’s allegations.
What’s more is a number of hedge fund managers, most notably Ackman’s rival Carl Icahn, have snapped up significant long positions in the stock.
The Herbalife short has been Ackman’s “biggest loser” in his hedge fund’s history. Since Ackman revealed his short position, shares of Herbalife have surged. So far, he’s suffered an estimated $US500 million in paper losses.
He’s continued to say that he will take this short “to the end of the earth.”
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