Is Herbalife a Pyramid Scheme, the Target of Market Manipulation, or Just a Good Gripping Yarn?

Australian money manager John Hempton has called the battle between investor Bill Ackman and nutritional supplement company Herbalife “hedge fund porn.” There is indeed something vaguely obscene about the ongoing drama, but the plot is much richer — and more interesting — than that of the typical skin flick. The Ackman/Herbalife tussle is probably more accurately compared to a Russian novel: complex and full of moral ambiguity. Here’s the backstory. Last month Ackman, CEO of the hedge fund Pershing Square Capital Management, explained to an investment conference in Manhattan why he had recently made what is essentially a $1 billion bet that Herbalife is a pyramid scheme that’s bound to collapse or be shut down by the Federal Trade Commission (FTC). The allegation is a function of the fact that, like companies such as Amway and Avon, Herbalife is a so-called multilevel marketing (MLM) firm. This basically means that it not only sells products to consumers through a network ...

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