Ackman applauds call for Herbalife investigation

March 13, 2013 - 8:28 AM

NEW YORK (AP) — Hedge fund manager William Ackman is applauding a consumer group's push for the Federal Trade Commission to investigate whether Herbalife is a pyramid scheme.

The National Consumers League said that it wants the FTC to investigate the claims against Herbalife as well as the vitamin and supplement products company's responses.

Ackman alleged in December that Herbalife was a pyramid scheme and made a bet the stock would fall, arguing that the company makes most of its money by recruiting new salespeople rather than on the products they sell. Herbalife disputes that.

In a statement late Tuesday, Pershing Square Capital Management's Ackman said that he was pleased that the NCL was requesting an FTC investigation and believes it will show that the company is a pyramid scheme.

On Wednesday, Herbalife said in a statement that "We regret that the National Consumers League has permitted itself to be the mechanism by which Pershing Square continues its attack on Herbalife."

The company said that perhaps Ackman's Pershing Square should be investigated, saying "its actions are motivated by a reckless $1 billion bet against the company based on knowingly false statements about Herbalife."

Herbalife maintains that it is a financially strong company that has created meaningful value for shareholders.

Last month Herbalife Ltd. denied a media report that it was the target of a law enforcement investigation. At that time the FTC would not confirm or deny whether any government agency was investigating Herbalife.

The Wall Street Journal had reported in January, citing unidentified sources, that the Securities and Exchange Commission had opened an inquiry into Herbalife.

Herbalife's business has become a point of contention between several prominent Wall Street figures. In December Ackman made his pyramid scheme allegations and said that he was shorting the stock. Short-sellers make money when the shares they're betting against decline. Greenlight Capital's David Einhorn, another prominent Wall Street figure, had raised concerns about Herbalife's business back in May.

Herbalife has taken steps to refute Ackman's accusations, holding an analyst and investor meeting in January that detailed how its business operates and who its customers are.

In a blowup on live television in February, Ackman and billionaire activist investor Carl Icahn traded barbs over an old investment deal and Ackman's position in Herbalife.

Last Thursday, an SEC filing showed that Icahn had increased his stake in Herbalife to 15.55 percent from 13.6 percent. Herbalife and Icahn have agreed that he can raise his stake in the company to as much as 25 percent and add two new members of his choice to its board.

Another investor, Dan Loeb of Third Point LLC, has disclosed an 8.2 percent stake in Herbalife, a vote of confidence in the company.

Shares of Herbalife fell 23 cents to $40.15 in premarket trading Wednesday. Its shares have traded in a 52-week range between $24.24 and $73.