Published: Sat, July 16, 2016
Economy | By Melissa Porter

Hedge fund manager Ackman still betting against Herbalife

Hedge fund manager Ackman still betting against Herbalife

"We have thousands of hours of footage of these distributors bilking other people out of their hard earned money", he said and added "HerbaLife can not accept changes from the government because no one is buying the company's product which would lead them to go bankrupt". The settlement marks a massive victory for Herbalife despite the $200 million price tag, since the supplement company will walk away from the investigation without the FTC labeling it a pyramid scheme.

But the FTC said many recruits made little or nothing and some actually lost money.

The FTC required the company to restructure its operations so that it tracked and rewarded sales that ended in purchases by consumers, rather than that it allegedly hoodwinked junior retailers.

Herbalife shares are up about 20% for the year so far, with half that gain coming after news of the settlement. Herbalife's 13-member Board of Directors will continue to include five members designated by the Icahn Parties.

The company sells products to its distributors and says that after that it can't be sure what happens.

Now that the FTC has concluded that Herbalife isn't really the pyramid scheme that Bill Ackman spent all these years in proving, it results in a major blow to his $1 billion short-selling bet against the company.

The FTC opened its inquiry into Herbalife's practices in 2014.

In late 2012, Ackman gave a three hour long presentation in NY where he alleged that Herbalife was a pyramid scheme and that the shares would fall to zero.

The distributors can make money by buying products at a discount and selling them at a markup. Multilevel marketing is a $34-billion-per-year industry, and some critics say they are aggregating enough political power that it may soon be hard for the FTC to go after pyramid schemes at all, according to Slate.

The settlements also "underscore our confidence in our ability to move forward successfully, otherwise we would not have agreed to the terms", Johnson said.

Herbalife said it had agreed to restructure its US business so that distributors are rewarded for what they sell, not how many people they recruit. Investors were encouraged by a deal announced between Herbalife and the billionaire investor Carl Icahn allowing him to increase his 17 percent stake in the company.

For some time, however, that day in late 2012 appears to have been something of an apex for Ackman and his bet against the Herbalife.

On Herbalife's website today, Herbalife chairman and CEO Michael O. Johnson issued this statement: "With our recent settlement with the FTC, we and our 4 million preferred members and distributors are focused more than ever on helping people achieve their goals-whether by losing weight, living a healthy lifestyle, or earning some extra money when and how they choose through our direct-sales business model".

Pershing Square did not immediately respond to a request seeking comment. Discount buyers will not be eligible to sell the company's products or earn rewards. Shares of Herbalife (NYSE:HLF) jumped to more than $70 a share and fluctuated between $65 and $70 throughout the morning.

Herbalife said Friday it agreed to pay $3 million as part of a separate agreement with the Illinois Attorney General's Office to settle an investigation there.

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