(Adds details on trading activity, comments by traders, links
to presentation webcast and Breakingviews)
By Svea Herbst-Bayliss and Ryan Vlastelica
NEW YORK, July 22 Billionaire investor William
Ackman's latest volley of accusations against Herbalife Ltd
on Tuesday missed its mark on Wall Street, with
investors sending the stock price soaring 25 percent.
Ackman, who has been battling the California-based nutrition
company for 19 months and has a $1 billion bet it will
eventually go bust, told 500 people in a New York auditorium -
and thousands watching the webcast - that Herbalife is a
criminal enterprise that targets minorities, counts nonexistent
customers, and breaks labor laws.
Ackman's $14.7 billion hedge fund Pershing Square Capital
Management unveiled its $1 billion short bet against Herbalife
in December 2012, calling the company a pyramid scheme where
members earn more money from recruiting than by actually selling
products to end users.
Herbalife has rejected the claims.
In his three-hour presentation, Ackman said officials are
moving too slowly against Herbalife. The Securities and Exchange
Commission, the Federal Trade Commission, and the FBI are among
those probing the company's business practices.
With this presentation, which he billed as the most
important in his career, he shifted his appeal to investors,
saying that by laying out all of the evidence against Herbalife
he was giving them a reason to start selling.
Ackman said he hopes to cause the company to collapse and
called for it to be shut down.
Herbalife Chief Financial Officer John DeSimone on Tuesday
said Ackman's claims were fabricated. He added that Herbalife
had commissioned a study that vindicated the company.
Herbalife shares rose 25 percent to $67.77, far exceeding
losses on Monday after Ackman told CNBC he would deal a "death
blow" to the company. Trading volume in Herbalife was the
heaviest since February 2013.
"Unfortunately, Bill over-promised and under-delivered on
this presentation," said Vijay Marolia, a fund manager at Regal
Point Capital Management. Several other hedge fund managers said
that they were recent buyers of the stock, and were not
convinced to sell by Ackman's presentation.
While there have been some bright moments for Ackman's
Herbalife bet, overall it has not fared well. Since the end of
2012, Herbalife shares have roughly doubled and Ackman's
billionaire rivals, including Carl Icahn and George Soros, have
purchased Herbalife shares.
Herbalife's move higher on the stock market on Tuesday
likely triggered a chain reaction as short-sellers covered their
losing bets, according to traders.
"All those people who were short yesterday scrambled to
cover and then it became a mad rush," said Chris Wang, portfolio
manager at SYW Capital Management LLC in New York, who does not
have a position in the stock.
Ackman's presentation on Tuesday focused largely on
so-called nutrition clubs that serve Herbalife's drinks - aloe,
tea and shakes. Ackman said Herbalife uses the clubs as
recruiting centers where people, often Latinos, have to work as
unpaid trainees before being allowed to try to rise to
Ackman said his firm spent $50 million on investigating this
business and that his researchers had audio, video and other
data after having visited 240 of these clubs.
"They are not selling weight loss in these clubs, they are
selling business opportunities," Ackman said. "This is all free
labor, totally illegal," he said.
He said that Herbalife booked people who showed up at the
nutrition clubs as customers even if they didn't pay for
Herbalife products. "I think there is an armory of weaponry in
the smoking gun department," Ackman said.
Hours into the presentation, Ackman's voice cracked and he
appeared to be choking back tears when he recounted how his
great grandfather came to America to pursue a dream. He said
Herbalife Chief Executive Michael Johnson was a "predator" who
tarnished that dream.
Herbalife countered when its CFO DeSimone said in an
interview on Fox Business News that Ackman's claims were
"completely false" and said that Ackman was operating out of
"There is certainly an economic incentive there," he said,
referring to Ackman's $1 billion bet against the company.
DeSimone added that Herbalife had commissioned a former FTC
economist to analyze its business, and that the results of that
study showed the company was breaking no laws.
(Writing and additional reporting by Richard Valdmanis and
David Gaffen; Editing by Nick Zieminski and Phil Berlowitz)