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 Ackman, who has been battling the California-based nutrition company
for 19 months and has a $1 billion bet it will eventually go bust,
told 500 people in a New York auditorium - and thousands watching
the webcast - that Herbalife is a criminal enterprise that targets
minorities, counts non-existent customers, and breaks labor laws.
Ackman's $14.7 billion hedge fund Pershing Square Capital Management
unveiled its $1 billion short bet against Herbalife in December
2012, calling the company a pyramid scheme where members earn more
money from recruiting than by actually selling products to end
users.
Herbalife has rejected the claims.
In his three-hour presentation, Ackman said officials are moving too
slowly against Herbalife. The Securities and Exchange Commission,
the Federal Trade Commission, and the FBI are among those probing
the company's business practices.
With this presentation, which he billed as the most important in his
career, he shifted his appeal to investors, saying that by laying
out all of the evidence against Herbalife he was giving them a
reason to start selling.
Ackman said he hopes to cause the company to collapse and called for
it to be shut down.
Herbalife Chief Financial Officer John DeSimone on Tuesday said
Ackman's claims were fabricated. He added that Herbalife had
commissioned a study that vindicated the company.
Herbalife shares rose 25 percent to $67.77, far exceeding losses on
Monday after Ackman told CNBC he would deal a "death blow" to the
company. Trading volume in Herbalife was the heaviest since February
2013.
OVER-PROMISED, UNDER-DELIVERED
"Unfortunately, Bill over-promised and under-delivered on this
presentation," said Vijay Marolia, a fund manager at Regal Point
Capital Management. Several other hedge fund managers said that they
were recent buyers of the stock, and were not convinced to sell by
Ackman's presentation.
While there have been some bright moments for Ackman's Herbalife
bet, overall it has not fared well. Since the end of 2012, Herbalife
shares have roughly doubled and Ackman's billionaire rivals,
including Carl Icahn and George Soros, have purchased Herbalife
shares.
Herbalife's move higher on the stock market on Tuesday likely
triggered a chain reaction as short-sellers covered their losing
bets, according to traders.
“All those people who were short yesterday scrambled to cover and
then it became a mad rush,” said Chris Wang, portfolio manager at
SYW Capital Management LLC in New York, who does not have a position
in the stock.
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"FREE LABOR"
Ackman's presentation on Tuesday focused largely on so-called
nutrition clubs that serve Herbalife's drinks - aloe, tea and
shakes. Ackman said Herbalife uses the clubs as recruiting centers
where people, often Latinos, have to work as unpaid trainees before
being allowed to try to rise to distributor posts.
Ackman said his firm spent $50 million on investigating this
business and that his researchers had audio, video and other data
after having visited 240 of these clubs.
"They are not selling weight loss in these clubs, they are selling
business opportunities," Ackman said. "This is all free labor,
totally illegal," he said.
He said that Herbalife booked people who showed up at the nutrition
clubs as customers even if they didn't pay for Herbalife products.
"I think there is an armory of weaponry in the smoking gun
department," Ackman said.
Hours into the presentation, Ackman's voice cracked and he appeared
to be choking back tears when he recounted how his great grandfather
came to America to pursue a dream. He said Herbalife Chief Executive
Michael Johnson was a "predator" who tarnished that dream.
Herbalife countered when its CFO DeSimone said in an interview on
Fox Business News that Ackman's claims were "completely false" and
said that Ackman was operating out of self-interest.
"There is certainly an economic incentive there," he said, referring
to Ackman's $1 billion bet against the company.
DeSimone added that Herbalife had commissioned a former FTC
economist to analyze its business, and that the results of that
study showed the company was breaking no laws.
(Writing and additional reporting by Richard Valdmanis and David
Gaffen; Editing by Nick Zieminski and Phil Berlowitz)
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