Shares of Herbalife are now down about 3% after Bill Ackman’s hedge fund Pershing Square launched a new website this morning.
HerbalifePyramidScheme.com, which was unveiled today, focuses on some of the company’s distributors and their recruiting practices that Pershing Square believes are deceptive.
The new site specifically features ex-distributor Shawn Dahl, a former member of Herbalife’s Chairman’s Club.
For many years, Shawn Dahl was one of Herbalife’s most successful distributors and was held out by the company as a paragon of success. Dahl ran a lead generation business called Online Business Systems (“OBS”) that was responsible for recruiting huge numbers of new distributors, and they generated large profits for Herbalife as they sought to advance in the Herbalife scheme. It was not until Pershing Square focused attention on Dahl and his deceptive recruiting practices that Herbalife cracked down on him.
Although Dahl is no longer a member of the Herbalife Chairman’s Club, his story remains important for a number of reasons. First, Dahl inflicted a great deal of harm on unwitting consumers with Herbalife’s knowledge and support, and the company cannot escape responsibility for its participating in his misdeeds. Second, we believe that OBS is still selling leads to fledgling Herbalife distributors. Third, Dahl’s rise to the top of the Herbalife pyramid was not, as Herbalife used to pretend, the result of hard work selling Herbalife products to consumers. Instead, he inherited a lead generation business from his mother-in-law that had been outlawed by the Canadian government, and continued to run that business with nothing changed but the name.
The new site also features a section for people to file a complaint.
In late 2012, Ackman publicly declared that he’s shorting more than 20 million shares of Herbalife with a price target of $US0. Ackman believes the company operates as a “pyramid scheme” and that regulators will be induced to shut it down.
A number of fund managers, including Carl Icahn, have disagreed with Ackman by going long the stock.
The stock was up earlier this morning after Herbalife released two press releases relating to earnings and announcing a $US1 billion convertible bond note offering.
Here’s a screenshot of the site: