Bill Ackman Loses Big After FTC Probe of Herbalife

Herbalife settled an over 2-year-old investigation with regulators that concluded it is not a pyramid scheme

On Friday, July 15, Herbalife settled an over 2-year-old investigation with regulators that concluded it is not a pyramid scheme, which is a huge win against the company’s biggest opposition Bill Ackman.

The Post reports, “The deal with the Federal Trade Commission will force the nutritional shake maker to severely limit paying distributors for recruitment, and requires it to create a separate class of distributors that buy products only for their personal use.

In addition, the FTC, in harsh language, found that Herbalife misled distributors by promising, in marketing videos, that it was normal to earn a living by selling the company product full time.

It is not, the FTC said.”

The company agreed to pay distributors $200 million for being misled into “believing they could earn substantial money selling diet, nutritional supplement and personal care products.”

Even though the FTC’s 42-page complaint throws some harsh criticisms at Herbalife, it was not explicitly called a pyramid scheme. This left its investors in good spirits as the company’s shares rose on Friday by 9.9 percent to $65.25.

Its shares are 53.5 percent above the price it had on Deceber 18, 2012, two days before this whole drama started. The Los Angeles-based company has been operating under a cloud since Dec. 20, 2012, when hedge fund billionaire Bill Ackman announced a $1 billion bet that Herbalife was a fraud and that its shares would go to zero after regulators found it was a pyramid scheme.

Ackman has repeated his claim many, many more times since then, and gas put his money and reputation on the line.

According to The Post, “Along the way, Ackman locked horns several times with investor Carl Icahn, who took the other side of the trade, both in terms of buying the stock and engaging in shouting matches on live TV.

Icahn, who with the FTC settlement clearly routed Ackman, eventually agreed to buy up to 18 percent of the company. On Friday, Herba­life said the ceiling on the Icahn agreement was lifted to 34.99 percent.”

Icahn said, “Simply stated, the shorts have been completely wrong on Herbalife.”

In a statement, Pershing Square said, “While it appears that Herbalife negotiated away the words ‘pyramid scheme’ from the settlement agreement, the FTC’s findings are clear.”

The Post reports, “Both Herbalife and Ackman spent lavishly on lobbyists — both on Capitol Hill and in some statehouses. The crafting of the language in the settlement proves Herbalife’s money may have been better spent.

For Ackman, the settlement and the resulting stock gain could bruise his portfolio along with his rep.

Pershing is down nearly 20 percent this year — after a similar drop in 2015.

Herbalife, which will operate for seven years under a monitor, said that many of the terms of the settlement were ‘either already being contemplated by the company or are extensions of practices already in place and will be implemented over the next 10 months.’”

Mark Snyder

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