“WHO DOES HE THINK HE IS?”
Peu après son arrivée aux États-Unis, Zahara est hospitalisée pour déshydratation et malnutrition. Angelina Jolie est également une femme engagée pour la protection de la nature et des animaux. Liver biopsies for all patients demonstrated findings consistent with drug-induced acute liver injury. The meal substitutes the man and woman had been using contained the bacteria. Court of Appeals for the Ninth Circuit issued a seminal decision, affirming a lower court finding that the BurnLounge MLM multilevel marketing program was an illegal pyramid scheme In other words, Johnson set up a plan that sells his stock automatically based on certain thresholds and criteria. People make business judgments of who they will do business with based on first impression.
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The company needed its own upgraded manufacturing facilities, he felt, plus labs to ensure that the products really contained the herbs the labels claimed they did. To tout the brand, Johnson wanted to sponsor sporting events, teams, and star athletes. It now sponsors more than of them, including Cristiano Ronaldo, the Portuguese soccer star.
Finally, and most important, Johnson wanted changes in the way the business opportunity was pursued. That meant curbing some practices while also embracing positive ideas being urged by other distributors, he says. At a videotaped global management retreat in June , viewed by Fortune , Johnson appeared to walk a tightrope, discussing the need for these changes while trying not to alienate powerful distributors.
It puts distributors in debt up to their ears. Johnson also wanted to embrace changes being urged by two top distributors, which were designed to reduce the high rates of turnover then being experienced among level-five distributors—those beginning to pursue the business. The company phased in changes. It rolled out its own online software tools, supplanting those sold by distributors. Herbalife charged less and could exercise control over content. Over time, most top distributors exited that business.
The rule changes easing the qualification hurdles for level-five distributors were introduced on a test basis in Russia in , and then globally in As a result, according to statistics provided by Walsh, the percentage of U. Purchasing patterns also changed, these statistics show. Throughout the Johnson era, the size of the average purchase has been getting smaller, while the number of orders has been increasing.
Though the impetus for the changes was apparently not regulatory, its impact could be. In an Herbalife distributor introduced nutrition clubs into the U. The charge entitled the customer to consume on premises servings of three prepared Herbalife products: Herbalife CEO Johnson first heard about nutrition clubs three years earlier, he says, when certain distributors were complaining about them.
Johnson and Walsh went to look at a club in Zacatecas, Mexico. Today there are about 6, nutrition clubs in the U. Herbalife nutrition club owner Edgar Montalban, shown in June , prepares a meal-replacement shake in Queens, N. They became particularly popular in Spanish-speaking communities of the U.
As successful as the model was, not everyone was thrilled with it. Because the clubs let Herbalife sell its products and business opportunity to lower socioeconomic strata than had been previously possible—more vulnerable populations—a former financial journalist named Christine Richard found them to be diabolical. By the summer of , indeed, Richard had concluded that a great deal was wrong with Herbalife. Above all, she thought, it was a pyramid scheme. Richard worked for the Indago Group, a research boutique that sold much of its work to short-sellers.
When Richard first spoke to investors about shorting Herbalife, many were wary, she recounts in an interview. In , Ackman took a massive public short position predicated on the audacious theory that the then triple-A-rated bond insurer MBIA—whose guarantees were propping up the ratings of countless other financial obligations that Wall Street was flogging across the globe—was catastrophically overleveraged and destined to collapse.
She declined, and the call ended. At lunch afterward DeSimone went from table to table. At one, the woman next to him, who turned out to be Richard, started asking him similar questions. Einhorn is widely revered as perhaps the smartest investor on the Street. The company realized he might be preparing a public short. After its May 1 earnings announcement, Herbalife executives took questions by phone.
If Einhorn was contemplating a public short, DeSimone says, he felt that was material information the public ought to have. It was a variant of the same questions Richard and Schulman had been asking. Herbalife had no lawyer in the room. Live complex, just across from the Staples Center. They had allies inside the hall with open phone lines. But Einhorn was just messing with their heads. Which posed a quandary for Bill Ackman.
Then Einhorn never surfaced. Ackman deliberated for months whether to go public, he says, preparing possible presentations. And then in September, and then in November. Most of these put buyers were effectively betting that the stock would drop markedly sometime before Dec. He had simply borrowed common stock and sold it—the conventional short position. There was a lot about Herbalife that was suspicious. How could that be? What the company really sold in all these countries, Ackman explained, was not Formula 1 but a fictitious business opportunity.
Then he played a creepy, officially produced Herbalife video. Subsequently, however, CEO Johnson had started toning down such claims, voluntarily disclosing the average gross compensation the company paid its distributors and requiring that income testimonials include disclaimers at least in the U.
The FTC, for its part, does not require such disclosures, nor explain how comprehensive they must be, if provided. At the time of the presentation, Herbalife was already a well-known name on Wall Street. It had enjoyed 12 straight record quarters, and its stock had quadrupled in the previous two years. Then there was the issue of timing. Ackman presented just 11 days before the end of the year, when hedge fund positions are marked to market for the year. Given the holiday season, there was no way Herbalife could respond that calendar year.
In that context, the bit about Ackman foregoing personal profit struck some as disingenuous. He explained on his blog: As for the notion that Herbalife was desperately expanding into foreign countries because of market saturation, the company had a simple answer: Walsh then offered evidence of consumer demand while asserting the genuineness of the business opportunity.
After Einhorn asked his questions in May, the company had had a reputable corporate survey firm, Lieberman Research Worldwide, perform two 2,person surveys. People who did pursue the business could really make it, Walsh insisted, though it did require very hard work. In it had made 46 of them in the U.
In it would also begin paying return shipping costs. Herbalife may now have the most generous buyback policy in the MLM industry.
Yet the rate of buybacks was low and had steadily dropped throughout the Michael Johnson years. It fell from 2. We would like to speak to victims. So he began to look for victims. Later he gave additional moneys directly to local organizations for the same purpose. He declines to estimate the total. At the same time he hired a raft of political consultants to find victims and to approach state attorneys general and other public officials in California, Connecticut, Illinois, Massachusetts, Nevada, New Mexico, and New York.
He was like one of these little Jewish boys, crying that the world was taking advantage of him. Icahn was giving his version of a decade-old dispute that led to a nine-year litigation between Ackman and him. This is a guy who takes advantage of little people.
Three days after the spat, Icahn started buying more. All this [other] stuff is off-base and ridiculous. A short squeeze is a feedback loop that occurs when excess demand for a stock pushes the price up, pressuring short-sellers to cover their positions, which requires them to buy stock, which further pushes the price up, and so on.
As Icahn continued buying—today he owns At the time the other biggest buyer was the company itself, which had long been pursuing stock buybacks as a corporate policy. Then fate granted Ackman a weird reprieve.
London was quickly arrested for insider trading: London pleaded guilty and, in April , was sentenced to 14 months. Herbalife hired PricewaterhouseCoopers and said it aimed to have the statements reapproved by the end of the year. Ackman set out to block that from happening.
In one of nine follow-up communications to the accountants, Ackman noted: He even offered to have Pershing Square foot the costs.
Investors were understandably skeptical of any company-ordered surveys. So several funds did their own. One longtime major investor told me he commissioned a blinded, high-datapoint, randomized survey asking a wide variety of questions. I asked Ackman this. The charge appears to have gone nowhere. Fidelity and Vanguard retained most of their preexisting stakes now holding This effectively maintained the short bet but placed the fund at less risk if the stock kept rising. Herbalife suspected, once again, market manipulation.
Herbalife complained to the SEC about these puts in March , but the charge has languished. When the Times tracked down the letter signers, some claimed not to remember having written them. In the context of a short-selling campaign, however, such conduct began to resemble securities fraud. Herbalife shares were further pummeled in April when, in the space of six days, it was reported that the company was under investigation by both the U.
Department of Justice and the Illinois attorney general. The bad news for longs got still worse in November, when Herbalife announced its third-quarter results. After 19 straight positive quarters, the company missed on both earnings and volume guidance.
Herbalife blamed the poor results on foreign currency fluctuations and the short-term impact of some new distributor rules. Ackman hailed the news as showing that Herbalife had exhausted its mature markets and that its modest efforts to curb fraud were crippling its ability to do business. In August it hired Alan Hoffman, a former deputy chief of staff to Vice President Joe Biden, as executive vice president for global corporate affairs. Each hire represented a vote of confidence for the company, as had, in late , the additions of two eminent Hispanics to the board: In April , former comptroller of the U.
Air Force Michael Montelongo also joined the board. The year ended on an important up note for the company. In December a Los Angeles federal judge approved the settlement of a class action against Herbalife that had been brought on behalf of all 1. The dismal result underscored the recurring question: Where were the victims? A group of 18 objectors—16 of them supplied by a Waukegan, Ill.
After his original presentation, Ackman put on three more. In the second, in November , four victims were interviewed. But they all described being victimized by a lead-generation business. The outfit was run, however, by a distributor who had also headed Newest Way to Wealth a decade earlier.
At a minimum, it could be argued, the company should have been watching him like a hawk. Herbalife finally banned all lead selling or buying in June A tough slog, the presentation struck some as peripheral to the pyramid-scheme allegation.
At the last event, in July , Christine Richard made a presentation on nutrition clubs. After visiting more than nutrition clubs in several countries, she said, she had concluded that naive, often undocumented immigrants were being defrauded into something resembling indentured servitude by predatory, distributor-led, company-countenanced training programs.
Trainees were allegedly being induced to generate artificial business for an existing nutrition club—dragging friends and family to show up, while shelling out money to pay for their shakes. Wiping away tears, he said: Michael Johnson is a predator, okay? This is a criminal enterprise, okay? As part of its response to the FTC inquiry, the company commissioned two documentary filmmakers to make a movie about nutrition clubs.
The hour-long film, previously unreported, depicts owners and participants at nine clubs in Miami, New York, and Los Angeles. Ackman had already signaled that he was stepping back from his fight against Herbalife, which sells weight-loss shakes and vitamins.
The year-old billionaire said in November that his fund, Pershing Square Capital Management, has shifted its "short" position to put options — a move that limited the downside risk.
He has since effectively sold all of those holdings, said the person, who asked not to be identified because the matter is private. With a short bet, an investor has to cover the position if the stock rises.
Options, meanwhile, expire without taking an additional hit. Both kinds of investments could have made money if Herbalife's shares had declined enough. Shares in Herbalife have more than doubled since the day before Ackman disclosed his position on Dec. Herbalife also announced it would change its name to Herbalife Nutrition Inc.
Management has repeatedly denied the pyramid-scheme allegations. Ackman had accused Herbalife of being an illegal operation that relied on an army of outside distributors to recruit members with get-rich-quick schemes. But the crusade had its successes.