What Are the Hallmarks of a Pyramid Scheme?

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Dec. 4 (Bloomberg) -- DA Davidson Analyst Tim Ramey and Bloomberg's Duane Stanford discuss Bill Ackman's Herbalife short with Stephanie Ruhle on Bloomberg Television's "Market Makers." (Source: Bloomberg)

Ackman's presentation and he laid out a not so pretty sec came out with seven guidelines, seven points to warn people of a business that would be a pyramid scheme.

And bill went through them.

I know you can't see them -- but this is exactly what herbalife is.

I want to get your thoughts on this.

When you watch this presentation, did you start to say maybe this guy is right and it could be a pyramid?

We did not.

It was fun to watch the stock trade because we couldn't see the presentation real-time.

Somebody who was alive tweeting said hurry up will, make a point.

You have two minutes to go.

He made no new points here and the idea of discovering whether a company is a pyramid scheme is not rocket science.

It is something you can do.

Companies that are pyramid schemes look like chain letters.

They don't look anything like herbalife.

They don't have real innovative products with key product differentiation.

Can i ask you then what specifically about herbalife products are innovative?

When i look at their vitamins, they seemed to be no different from centrum or they don't seem to be different from a slim fast, yet they cost four to five times the price and a market to people in very low income environments.

I think you got sucked in by one of mr.

Ackman's slides.

I definitely didn't. that's not right.

The per cost serving as about $1.30 if you pay full retail for formula one.

It's about $.90 if you got the 75% price.

It absolutely was a distortion of price in his facts about herbalife.

But it doesn't matter.

I don't know what you pay for makeup, but i bet you pay more for makeup than a lot of other women pay for their makeup.

Should we be coming to your defense and sounding the alarms at the ftc?

When i look at the map of queens where all of the nutrition centers are, they are clustered seven to a block in some of the poorest neighborhoods in queens.

That's not buying skin products that bergdorf goodman.

It seems to be targeting the poorest people and i wonder why.

For you, when you look at this map, and you cover mcdonald's, i don't see mcdonald's clustered in places like that.

Nutrition is an important part of the discussion, but at this point, it comes down to whether the federal government will step in.

You have in some ways a stalemate because there is plenty of data into databases that has not been released that herbalife says it is expensive.

We're not going to ask are distributed to give over information just because bill ackman asked for it, but it could be key if the federal government wants to come in and subpoena and look at that data.

I get it great i understand if i'm herbalife, i might say go fish.

If i was herbalife, i might say if they want to do an investigation -- why not figure out what their sales are and what their returns are?

Why would they want to do that?

Is that a question to me?

They report their returns every year and they are to minimus.

With regard to the actual retail sales, costco knows what you buy , everything about what you buy.

Consumers would be up in arms if costs go turned that eta over to procter & gamble.

This is the example he used on your show -- it would be incredibly value for procter & gamble to have this data.

It certainly would and consumers don't want that data turned over.

The you keep the receipts for your tax deductions?

I bet you do, but you don't have to turn them over to the government.

You just have to have them.

I've been trying to do as much work as i can to understand herbalife.

You know a better than i do and away knows it better than i do.

I found hundreds of videos on the internet with people in the founders circle, but no one is ever selling product.

They are selling the idea to be a distributor.

That makes me feel unsettled.

How about you?

You could make the point.


There are lots of videos that seem to be extremely promotional and i think the company in a lot of ways is doing things to elevate their act, to improve the return policy, to provide refunds to distributors who decide they don't want to be distributor's anymore and i think compliance has been elevated.

We owe a lot of the steps to mr.


He has made this company be a better company.

They have made great steps to improve that.

Are they going to do that retroactively?

What about the people who want to return things before this past year or the hundreds or thousands of distributors who did leave?

Are they going to retroactively pay all his people?

Here is the issue at mr.

Ackman knows he is sort of distorting the facts here.

His people were not distributors.

These people were customers.

There are so few of the people ackman characterizes as distributors ever had any business intent.

You know the numbers.

71% of distributors never recruited anybody.

There is a middle ground, a gray area that have halfheartedly tried to be in the business and some people really tried.

Let me jump in here for a second.

The audit expected by the end of the year, do you still think they are going to come by the end of the year?

What was the basis for them coming earlier?

I have no reason to believe they won't be out by the end of this year.

I spoke to someone yesterday and the indication was the same as he has always made -- by the end of the year or sooner.

My earlier read, which of course was wrong, was that an awful lot of the work on the audit was completed by july 30. the restatements were all done.

The new balance sheet was there and you can't have a balance sheet without an income statement.

Is there cause for concern?

When you and i spoke, you said we thought we would be getting it at the end of september.

Where did you get that information and what changed?

It is my job to analyze information and draw conclusions.

That was the conclusion i drew that was not correct.

Nobody gave me that information and i resented the intimation by you or mr.

Ackman that i received that information from the company, which would be inside information.

You think it's not a problem that we will have to wait till the end of the year or do you think we will get it at the end of the year?

I think we are going to get it i the end of the year or sooner.

If the correct answer -- let's say we knew in the correct answer was december 15 and it was always december 15, should we continue to get more concerned as time goes on?

Maybe, maybe not.

It is a long process to re-audit three years worth of history plus the current year.

For most of the companies i've looked at, it's taken well over a year to do.

They are throwing a lot of resources at this one and they don't take this pronouncement lightly.

For him to say by the end of the year or sooner, i'm sure he chose his words very carefully.

This text has been automatically generated. It may not be 100% accurate.


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