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NOTE: The reports below were subsequently determined to be misleading.


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" and the December 21, 2012 Forum Report: Candidates for an Activist “Golden Goose” Analysis.


Sources: The Wall Street Journal | MarketBeat, February 4, 2013 article and The New York Post, February 4, 2013 article


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February 4, 2013, 10:42 AM

FTC Reportedly 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 public scrutiny.

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 Reserved

Salve for shorts

Herbalife is the subject of ‘pending’ probe


Last Updated: 10:28 AM, February 4, 2013
Posted: 11:08 PM, February 3, 2013




Embattled Herbalife is feeling the heat — and this time it isn’t coming from a hedge-fund mogul.

The Los 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 card.”

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.


© Copyright 2013 NYP Holdings, Inc. All rights reserved.



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