Photographer: Patrick T. Fallon/Bloomberg

Ackman's Latest Herbalife Punch Is Video of Purported Victims

  • Shares rise as billionaire renews bid to drive down stock
  • `The American Dream Denied' features tales of lost savings

Investors were unfazed by billionaire Bill Ackman’s latest salvo in a three-year battle to make good on his $1 billion bet that Herbalife Ltd. is an illegal pyramid scheme.

The shares rose 1.3 percent to $43.99 on Tuesday after Ackman’s Pershing Square Capital Management hedge fund released a 13-minute video that tells the stories of people claiming to be victims of Herbalife, which sells weight-loss shakes and other supplements through independent distributors around the world. Ackman, who has a short position in the company, is trying to drive down the stock price.

Speaking mostly in Spanish, the participants in the video -- called “The American Dream Denied” -- recount similar tales of losing thousands of dollars as Herbalife distributors. The company’s business model mixes selling the nutrition supplements with recruiting others to do the same. Many of the subjects said they tapped their savings, borrowed from family members and sold possessions to stay in the Herbalife system. In the end, they said they lost most of their money.

The interviewees support Ackman’s claims that Herbalife is taking advantage of immigrants and the poor, who are lured by Herbalife recruiters with promises of riches. People in the video say they were told that the way to make money in Herbalife is to recruit people, not sell products, which Ackman says is the hallmark of a pyramid scheme.

Short Stake

Herbalife has countered by saying it doesn’t record who is the end user because it only sells to distributors. It has also pointed to third-party surveys that show its products have about 8 million customers in the U.S. Herbalife didn’t respond to a request for comment on Tuesday.

For Ackman to make money on his short position, he needs Herbalife’s stock to fall. Before today, the shares had gained about 3.5 percent since December 2012, when he went public with his allegations and disclosed his short position.

This isn’t the first time an attack by Ackman has fallen flat. A three-hour presentation in July 2014 boosted the stock a record 25 percent in one day. That prompted Ackman to deem the talk a “PR failure.”

Pershing Square’s campaign against the company has included hiring outside firms to investigate it. Herbalife has repeatedly denied the accusations, but the criticism has prompted a probe by the U.S. Federal Trade Commission.

Investigations by the Manhattan U.S. attorney’s office and the New York field office of the Federal Bureau of Investigation into Herbalife have failed to find evidence to support bringing charges, the Wall Street Journal reported last month. The two entities also don’t have evidence to charge Pershing Square for manipulating Herbalife’s stock, the newspaper said.

Before it's here, it's on the Bloomberg Terminal.