BOSTON (Reuters) - Hedge fund manager William Ackman said on Thursday that Herbalife Ltd, the nutritional supplements company he is betting against, was like another multilevel marketing company that U.S. regulators shut down in January.
Late last year, Ackman went public with his $1 billion bet against Herbalife's stock, calling the company a pyramid scheme and accusing it of preying on minorities with promises of big payouts that rarely materialize.
In a presentation called "Side-By-Side: A Comparison of Fortune Hi-Tech Marketing and Herbalife," Ackman said the two companies were alike in the riches they promised and the small number of distributors who ever obtained them.
The Federal Trade Commission and authorities in three states had accused Lexington, Kentucky-based Fortune Hi-Tech Marketing of running an illegal scheme where recruitment of new members brought in more money than actual sales of products.
Fortune Hi-Tech offered distributors a chance to build their own businesses and sell satellite television service, home security systems, beauty products and other consumer goods and services.
Now Ackman is hoping regulators will see the similarities between a company they have already shut down and Herbalife.
A Herbalife spokesman said on Thursday, "Herbalife is a financially strong and successful company, having created meaningful value for shareholders, significant opportunities for distributors and positively impacted the lives and health of millions of consumers during the company's 33-year history."
Ackman has said Herbalife's share price, now above $38, would eventually fall to zero. At Thursday's market close the stock was up 17 percent year to date.
The stock's rise is due perhaps in part because two prominent Wall Street rivals of Ackman - Daniel Loeb and Carl Icahn - have taken the opposite side of his bet against Herbalife.
The presentation by Ackman's $12 billion Pershing Square Capital Management said Herbalife, like Fortune Hi-Tech Marketing, had a distributor agreement that is difficult to comprehend and that both companies tempted distributors with the promises of special bonuses.
But the hedge fund said 98 percent of the distributors for Herbalife and for Fortune Hi-Tech Marketing collected commissions of less than $1,000 per year.
Pershing Square highlighted the estimated dollar amount related to consumer injury at Herbalife. Pershing Square put it at $3.8 billion for the years between 1980 and 2012. At Fortune Hi-Tech Marketing, it was $169.3 million between 2006 and 2011.
Ackman went public with his presentation only two days after the National Consumers League wrote to the FTC, urging it to investigate Herbalife as a possible pyramid scheme. FTC spokesman Frank Dorman said the agency could not comment on letters it has received.
Wall Street interpreted the league's letter as a small win for Ackman, and Herbalife shares fell. On Thursday, the stock closed down nearly 1 percent at $38.55.
But Herbalife had harsh words for the National Consumers League and Pershing Square, calling the industry group a tool for the hedge fund.
On Thursday Herbalife took another swipe at Ackman.
"Pershing Square's latest attack offers nothing new and is solely about generating headlines. It demonstrates Bill Ackman's level of desperation with regard to his reckless $1 billion bet. The primary sourcing for this most recent report is Ackman's own December 20 presentation, which itself is based on misrepresentations and factual inaccuracies. In the last three months, Bill Ackman has proven none of his claims about Herbalife and its business model," a spokesman said.
The Fortune Hi-Tech case is Federal Trade Commission v. Fortune Hi-Tech Marketing, 13-cv-00578, U.S. District Court, Northern District of Illinois (Chicago).
(Reporting by Svea Herbst-Bayliss, additional reporting by Martinne Geller in New York,; Editing by Lisa Von Ahn and Kenneth Barry)
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