The hedge fund's founder and CEO William Ackman said earlier this week that he believes the nutritional supplements company is a pyramid scheme and announcement that he is shorting the stock. Herbalife vehemently denies the claim but the news has pummeled its stock price three days in a row.
Ackman said Wednesday that he has been shorting the company's stock for several months. Short sellers earn money when a stock declines. Ackman detailed his allegations in a presentation Thursday at the Sohn Conference Foundation meeting in New York and confirmed that he has an "enormous" short position. On Friday, Pershing made the information used in its presentation public, launching the web site www.FactsAboutHerbalife.com. It includes the source data used to create its presentation that it titled "Who wants to be a Millionaire?".
Herbalife has denied the accusations several times over and said Friday that it will host an analyst day the week of Jan. 7 to respond in detail to the "distorted, outdated and inaccurate information" laid out by Pershing Square.
Ackman, a noted hedge fund manager, claims that Herbalife is misrepresenting some of its financial information to disguise the nature of its business. He says distributors make more money from recruitment than from actual sales to consumers, which he says defines it as a pyramid scheme.
Herbalife, which signs up independent distributors to sell supplements and weight loss products, says the allegation that it is a pyramid scheme is bogus. The company said it asked Ackman to allow Herbalife to participate in his presentation but Ackman declined.
"Now we know why," the company said in a statement Thursday. "Had our executives been there, they would have been able to tear Mr. Ackman's premises and interpretation of our business model apart. His misstatements and mistakes are too numerous to address immediately."
Herbalife is urging the Securities and Exchange Commission to investigate the events, saying it appears to be "yet another attempt to illegally manipulate the market by overzealous short-sellers."
The company, which is incorporated in the Cayman Islands and has its principal operating subsidiary in Los Angeles, sells its products in more than 80 countries.
Pershing Square's web site information includes Herbalife distributor presentations, recruiting scripts, SEC correspondence, third-party investigative reports and other materials on the history of the company that Pershing says will help the public understanding the facts about Herbalife. The data was gathered by Pershing Square and its legal and other advisers from public sources over the last year.
Herbalife's shares fell 19 percent, or $6.43, to close at $27.27 Friday. This follows a 12 percent decline Wednesday and nearly 10 percent drop Thursday. Its stock is down 47 percent in the year to date.