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Ackman Says Investigation Found Herbalife Violates Chinese Laws

Herbalife Distribution Center
An employee stacks boxes of products for orders at the Herbalife Ltd. Los Angeles distribution center in Carson, California, on March 4, 2014. Photographer: Patrick T. Fallon/Bloomberg

Billionaire Bill Ackman, renewing his attack on the nutrition and weight-loss company Herbalife Ltd., said its investigation into the business’s Chinese operations found that they violate direct-selling laws.

Ackman’s firm, Pershing Square Capital Management LP, hired OTG Research to evaluate Herbalife within China, Ackman said today during a presentation. Pershing found that Herbalife pays people illegally based on the number of recruits they amass. The company’s “hourly consulting pay” is key to showing that it violated laws, Pershing said, citing the OTG probe.

The move represents Ackman’s latest condemnation of Herbalife, a maker of vitamins, skin creams and meal-replacement shakes that he alleges is a pyramid scheme. Ackman revealed in December 2012 that Pershing had sold short more than 20 million of Herbalife’s shares in the company, meaning his firm stands to gain if the stock declines. Herbalife, which operates in more than 80 countries, has denied Ackman’s claims.

Ackman was the subject of a New York Times story earlier this week on tactics he used to lobby lawmakers about Herbalife. The paper called his efforts an “extraordinary attempt to leverage the corridors of power -- in Washington, state capitols and city halls.”

Herbalife, based in the Cayman Islands, said yesterday that Ackman’s China presentation is just an extension of that strategy.

‘Going to China’

“Having failed to make his case on Wall Street, Bill Ackman took his fight to Washington, D.C., and the states,” Barb Henderson, a spokeswoman for Herbalife, said in an e-mailed statement. “Now that those efforts to buy his way to an investigation have been exposed, he is going to China. We are confident in the strength of our consumption-based business model in China.”

Herbalife shares were little changed in New York today, trading at $65.85 as of 2:52 p.m. The stock had declined 16 percent this year through yesterday.

Ackman told an investment conference in New York last month that changes to the way he shorted Herbalife meant he now stands to gain more from the nutrition company’s demise than when he started. Last year, he reduced the equity short position in the company while maintaining his bet through long-term put options.

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