The battle for Herbalife (HLF) is heating up once again. QTR Research most recently outlined its short thesis on Herbalife’s stock ahead of a documentary’s release, a movie about Pershing Square Capital manager Bill Ackman’s $1 billion short bet on Herbalife and his drive to expose the company as a pyramid scheme. It looks like the Titanic found its iceberg.
Some people who lost money to Herbalife, are getting some of their money back. The company must sell out $200 million for its deceptive practices after it came to a settlement with the Federal Trade Commission. While the FTC may not have labeled the company a pyramid scheme, but when you look at the settlement and the facts, the company seemed to have been certainly operating as one. The FTC has forced the company to restructure and begin operating correctly by May of 2017. In its latest annual report the company is experiencing deteriorating fundamentals, strong foreign exchange headwinds, a newly disclosed SEC investigation probe and declining growth.
As a reminder, on July 15, 2016, the Federal Trade Commission (FTC), after more than a two-year investigation, announced a settlement with Herbalife stating:
We have agreed to a settlement with Herbalife International of America, Inc. and its affiliates that provides $200 million in redress for consumers we contend were harmed by the practices challenged in the Commission’s complaint.
With this settlement, Herbalife has agreed to restructure its business, transforming it from an organization that pays its distributors based on their own wholesale purchases and those of their downlines, to one where compensation is calculated based upon verifiable retail sales. Significantly, in order to pay compensation to distributors at current levels, the order requires Herbalife to verify, through receipts and other reliable methods, that its business is driven by retail sales and that at least 80% of its sales are made to legitimate end-users. Otherwise, it must reduce rewards to lower levels.
FTC Chairwoman Ramirez had this to say herself about Herbalife:
Herbalife is going to have to start operating legitimately