Any company worth billions of dollars is going to fall under some scrutiny, especially if it's using an MLM business model. Even reputable, billion-dollar companies with 30 years of success like Herbalife get put under the microscope. According to Bill Ackman, Herbalife is a scam and nothing more than a pyramid scheme.
In fact, Bill Ackman is actively trying to shut down Herbalife and has positioned his hedge fund to get a big payday if he succeeds. Ackman manages a hedge fund that has shorted more than 1 billion dollars' worth of Herbalife stock. If the stock falls – and Ackman says he thinks it will fall all the way to zero – the fund will make money.
On top of that, the National Consumers League (NCL) wrote a letter calling on the Federal Trade Commission to scrutinize the business practices of Herbalife, a multilevel marketing (MLM) company. In the letter, the NCL cited a report from Pershing Square Capital Management (Ackman's hedge fund) that said Herbalife business practices could be signs of a pyramid scheme.
DSA stands its ground
Despite all this, the Direct Selling Association (DSA) is pushing back! DSA president Joseph Mariano said the organization was concerned the NCL's request could create more negativity in the marketplace and only benefit short sellers.
"If a balanced examination of the facts is conducted by any truly disinterested party it will result in only one conclusion – that direct selling companies like Herbalife are committed to protecting consumers and creating a better life for their communities, their salesforce members and their customers," Mariano said in a DSA statement.
Many times, allegations of scams come from people who may not understand what MLM actually is. Mariano defended Herbalife as a longtime DSA member that had complied with the law as well as the DSA code of ethics.