NOTE: The reports below were subsequently determined to be
In its distribution of the articles below, from The Wall
Street Journal | MarketBeat and its referenced
New York Post source, the Forum invited advice
to establish a context for the reported numbers of complaints found in the
FTC response to the New York Post's information request. Specifically, it
was noted that while the Wall Street Journal and other news reports
referred to the Post's reference to 192 complaints over 7 years, none had
calculated the 27.4 average annual rate as a proportion of Herbalife's reported 2.7 million distributors (see the
Item 1 Business section of Herbalife's February 21, 2012 filing of its SEC
Form 10-K annual report for 2011), indicating an annual rate of
complaints from 1 out of about 98,000 distributors, or 0.001%. It is not
known how this compares with other multi-level marketing companies, or
with food and drug companies.
For previous reports of this valuation controversy among
short and long investors, see
For Forum plans to address investor
decisions relating to activist proposals for short term value realization, see the October 25, 2012 Forum report section on "Valuing
Long Term Enterprise Success: a golden goose analysis"
December 21, 2012 Forum Report: Candidates
for an Activist “Golden Goose” Analysis.
The Wall Street Journal | MarketBeat, February 4, 2013 article
The New York Post, February 4, 2013 article
THE WALL STREET JOURNAL.
WSJ.com's inside look at the
4, 2013, 10:42 AM
Investigating Herbalife; Shares Tumble
Somewhere, Bill Ackman is smiling.
Herbalife Ltd. shares dropped as much as 12% Monday morning after
The New York Post reported the nutrition company may be
under investigation by the Federal Trade Commission. The publication
cited documents obtained via the Freedom on Information Law. The Wall
Street Journal reported last month that officials at the Securities and
Exchange Commission have opened an inquiry into the company amid the
The Post’s report comes more than a month after Ackman publicly said he
was betting against Herbalife, a company that he says operates as a
pyramid scheme. Ackman’s firm Pershing Square Capital Management has bet
more than $1 billion that Herbalife’s stock price will fall. He has called
for the government to shut down the company.
The New York Post, citing the FTC documents, says there had been 192
complaints filed against Herbalife in the last seven years over issues of
false promises, difficulty in obtaining income owed and refunds. The Post
said the FTC redacted some sections because it was not necessary to
divulge information obtained “in a law enforcement investigation.”
Herbalife shares trimmed earlier losses and recently fell 5.8% to $33.15.
The stock fell 20% last week amid worries about regulatory action.
The FTC last week shut down a Kentucky multi-level marketing operation.
Herbalife has repeatedly denied allegations that it is a pyramid scheme
and has defended its business model on several occasions, including a
two-and-a-half-hour presentation last month in New York.
Copyright ©2013 Dow Jones & Company, Inc. All Rights
Herbalife is the subject of
By MICHELLE CELARIER
10:28 AM, February 4, 2013
Posted: 11:08 PM, February 3, 2013
Herbalife is feeling the heat — and this time it isn’t coming from a
Angeles-based distributor of nutritional products is the subject of a law
enforcement investigation, The Post has learned.
The existence of the probe emerged after the Federal Trade Commission,
responding to a Freedom of Information Law request by The Post, released
192 complaints filed against Herbalife over the past seven years.
The FTC redacted some sections, saying it didn’t have to divulge
“information obtained by the commission in a law enforcement
investigation, whether through compulsory process, or voluntarily ...”
Other complaints contained a note referring to a “pending law enforcement
action.” The FTC did not say whether the action was civil or criminal.
The Post filed a Freedom of Information Law request with the FTC on Dec.
26 to see if there had been any substantive complaints six days after
hedge-fund activist Bill Ackman went public with a $1 billion short
position – calling Herbalife’s multi-level marketing model a pyramid
scheme that should be shut down by regulators.
In all, the FTC released 729 pages of complaints.
The FTC received complaints about false promises Herbalife made and the
difficulty distributors had in collecting income owed and in getting
refunds. Some, months and years before Ackman did so, told the FTC they
believed the company is a pyramid scheme.
One distributor in Franklin, Pa.., wrote, “I have been in a real dilemma
regarding what to do about this business.”
“I do not like the deception present. It’s one thing not to reveal every
detail; it’s another to outright lie and encourage others to do so . . .
you encourage lying.”
The woman said she was given a script to read to recruits that there were
“only a few openings left.”
“Yeah, right!” the woman wrote in her complaint.
The woman — who said her husband earned $4,000 a month — also said
Herbalife told her she would need to spend $6,450 a month to turn a
profit. “How in the world am I going to expend this kind of money?” she
asked in her complaint. She said she felt trapped. “If I quit, I have no
hope of paying off the $7,000 [already due the company] left on the credit
In a statement, Herbalife said it receives "a relatively low number of
complaints" and takes "every one of them seriously."
Herbalife shares and its execs have been under pressure since Dec. 19 when
Ackman announced his massive short position.
Shares tumbled 38.7 percent in the four trading days following the Ack-attack.
But an 8 percent stake bought by hedge-fund rival Dan Loeb in early
January pushed the stock back up some 77 percent by Jan. 15.
Loeb said it was “preposterous” that the FTC would take action against the
company. Shares see-sawed again last week, falling almost 20 percent after
the FTC shut down a Kentucky multi-level marketing operation.
For much of this year, investors have staked out positions — some backing
Ackman and others behind Loeb — not knowing what regulators would do.
After reviewing the now-public complaints, which the FTC put on its
website, Ackman told The Post: “I have a lot more confidence in our
government’s regulators than those who own the stock.”
The FTC, Herbalife and Loeb could not be reached for comment.
2013 NYP Holdings, Inc. All rights reserved.