Billionaire hedge fund manager Bill Ackman's latest claims that dietary supplement company Herbalife is an elaborate fraud failed to convince investors Tuesday, who pushed shares in the company up more than 25 per cent.
Ackman, who runs New York hedge fund Pershing Square Capital, has been publicly attacking Herbalife for more than a year, saying the company's entire business model is an elaborate pyramid scheme that makes all its money from recruiting new salespeople for its products, not the sales of those diet products themselves.
Herbalife has repeatedly and vigorously denied Ackman's claims.
The Pershing Square fund has put more than $1 billion of its own money where Ackman's mouth is, shorting the stock relentlessly since 2012.
His big bet against Herbalife hasn't gone smoothly though, as the shares have gained 143 per cent since he started shorting the company. Meanwhile, other billionaire investors, including George Soros and Carl Icahn, have backed the company and made tidy profits.
Ackman's allegations have prompted investigations from various U.S. regulators into the company's dealings, but so far there's been no action on any of those probes.
On Monday, Ackman announced he would make what he called "the most important presentation" of his career on Tuesday, the mere suggestion of which pushed Herbalife shares down 10 per cent with dread over what he would reveal.
But when Ackman tipped his hand to his smoking gun on Tuesday, investor reaction was underwhelming. The shares opened slightly lower on Tuesday, before marching steadily through the day.
When the trading dust settled, Herbalife shares gained more than $13 or 25 per cent to trade at $67.77 on the NYSE. That's higher than they were before Ackman announced he would have a presentation on Monday.
Labour violations alleged
Among other allegations, Ackman says Herbalife focuses on nutrition clubs that sell the company's products to act as recruitment centres for new sellers. Existing sellers also have to pay higher and higher fees as they move up the chain, he says. "It creates a tendency to want to stay because you think you're almost just going to make it," he said.
He also alleges the company disproportionately targets poor people and members of visible minorities.
Much of his presentation centred on the company's alleged flouting of labour laws by not paying people who trumpet and sell the company's products at these nutrition centres.
He urged regulators to step in and halt trading in the company, something they have been reluctant to do so far.
"Unfortunately, Bill over-promised and under-delivered on this presentation," Regal Point Capital Management fund manager Vijay Marolia told Reuters.
When asked for comment on Ackman's latest claims, a spokesperson for Herbalife told Reuters "Bill Ackman’s claim about the earnings of Herbalife nutrition clubs is completely false and fabricated."