Herbalife Defends Itself from Pyramid Scheme Allegations

LOS ANGELES Herbalife Ltd., the global nutritional products company, on Thursday refuted arguments from hedge fund manager William Ackman that the company is a pyramid scheme that derives little money from retail sales.

In an investor presentation, Herbalife noted 5.7 million homes purchased its products in the three months preceding 2012 studies that Lieberman Research Worldwide conducted.

Ninety two percent of the consumers who purchased the products were non-distributors, Herbalife pointed out, undermining the view that very few consumers actually buy the products from the company and its distributors.

Los Angeles-based Herbalife told analysts and investors in New York that it adheres to an advisory opinion from the FTC in connection with pyramid schemes and that only one court in Belgium has found it operates such an unlawful enterprise.

"Herbalife believes the decision is legally and factually wrong and is confident that it will be reversed on appeal," Herbalife stated in the presentation.

Founded in 1980, Herbalife is a multi-level marketing distributor in 88 countries with annual sales of $3.9 billion as of Sept. 30.

It has been forced to respond to allegations from Pershing Square Capital Management that it runs a pyramid scheme, exploiting distributors, most of whom fail.

The Securities and Exchange Commission is said to be investigating the company.

Herbalife maintains its financials comply with securities law and generally accepted accounting principles.

In the investor presentation, the company made a number of other assertions including the following.

·        The company has a vast global presence with its products available in more than 600 locations around the world.

·        Herbalife invested $44 million last year in science and technical activities, including spending $1 million on research and development.

·        In the United States, its growth is sustainable inside and outside the Latino market.

·        The majority of former distributors would recommend Herbalife to friends and family.