Herbalife knocked as illegal pyramid scheme

Herb Greenberg, who is in the enviable position of living in San Diego and being a regular on the New York–based CNBC TV business channel, this morning (July 24) said hedge-fund head Bill Ackman made a superb presentation this week when he said the multi-level marketer, nutritional-supplement company Herbalife is an illegal pyramid scheme.

Ackman in late 2012 bet $1 billion that Herbalife stock will fall. On Tuesday, he made a long, emotional presentation showing how the company is indeed a pyramid — not the first such presentation he has made.

Herbalife runs out of Los Angeles but is officially based in the offshore tax and secrecy haven of the Cayman Islands. In my judgment, that is extremely important in sizing up the management and governance of this company, although Greenberg didn't mention that this morning.

As soon as Ackman started talking Tuesday, Herbalife stock began rising and ended the day up 25 percent. Most commentators — and Herbalife — poked fun at Ackman. Not Greenberg, who watched the presentation, and earlier spent months studying multi-level marketing. Greenberg says Ackman made his case. (Today, Herbalife stock is down slightly, but that is not significant.)

A couple of other Wall Street fat cats are trying to run Herbalife stock up as Ackman tries to run it down. So, the stock movement might not have that much to do with the quality of Ackman's presentation.

The next move is up to the Federal Trade Commission and Securities and Exchange Commission. The Latin market accounts for more than half of Herbalife's business. That may deter typically weak-kneed regulators, who will often overlook fraud (such as in for-profit universities) if they think a number of people will be hurt by any stern action.