Ackman accuses Herbalife of breaking laws in China

BOSTON, March 11 Tue Mar 11, 2014 5:03pm EDT

BOSTON, March 11 (Reuters) - Billionaire investor William Ackman renewed his attack on Herbalife on Tuesday, saying he has evidence showing the nutrition and weight loss company is breaking direct-selling laws in China, its fastest growing market.

The company said it follows local laws.

Ackman, who has placed a $1 billion short bet against Herbalife, said the company is breaking the law in China by making new recruits pay an entry fee and by letting distributors recruit fresh members. He made the claim on a conference call that lasted more than two hours and drew some 300 listeners.

He was joined on the call by one of his lawyers, David Klafter, and Aaron Smith-Levin, whose OTG research firm conducted interviews with Herbalife distributors in China.

"Yes, they are violating both civil and criminal law" in China, Klafter, a senior counsel at Ackman's hedge fund Pershing Square Capital Management, said on the conference call.

Ackman has charged Herbalife with running a pyramid scheme, in which members make more money recruiting new members than selling the actual product. He made that claim public in December 2012 when he unveiled a $1 billion short position in the company's shares. So far he has lost money on the bet as rivals like Carl Icahn took the other side.

On Tuesday, he said he is sticking to his bet and that recent fresh media attention should help galvanize regulators into reviewing the matter. Herbalife said it remains confident in its business in China and said it is in compliance with local laws. The company says its business is not a pyramid scheme.

Herbalife's share price closed down 1.16 percent at $65.39.

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