Route One Investment Company, Capstone Investment Advisors, Indus Capital Partners, and Hotchkis & Wiley Capital Management are among the big money managers that increased their holdings in Herbalife (HLF, Financial), which helped to boost the company stake. Since the allegations by William Ackman, the company is under surveillance by various federal agencies including the Federal bureau of Investigation.
Sale through independent distributors
With products ranging from weight management, healthy meals, snacks and also sports, fitness, etc., the company sells its products through independent distributors’ network, which is the main reason behind the allegation of it being a pyramid scheme.
Investments amid allegations
While Route One Investment Company increased its stake by 145%, Capstone Investment Advisors increased its holdings by 42%, and Indus Capital Partners increased by a massive 205%. Hotchkis & Wiley Capital Management entered the list as a new shareholder holding around 828,600 shares. The above said investors are among the top 30 biggest investors as confirmed through their quarterly holdings report submitted to Securities and Exchange Commission. With billionaire investors Carl Icahn (Trades, Portfolio) and Soros Fund Management keeping their stake unchanged with 17 million and 3.45 million respectively, there is a definite boost to the stake of Herbalife. Still, federal agencies are trying to figure out the business practices of Herbalife and are constantly watching the company’s investments. With allegations from not only rich billionaires but also the company’s salesmen, Herbalife is still a watchful catch if you wish to invest in it. While there were allegations that Ackman held a short bet in Herbalife in 2012 and a potential stock manipulation was involved, Ackman denied such charges and instead accused the company of being a pyramid scheme. All these happenings will now be under close watch by federal agencies, and the company will be checked for internal business practices to establish whether the company operates on pyramid model or not. Many federal agencies tried to contact Herbalife members to understand what was happening in the company. Ackman alleged that while he was losing from the stock, billionaire investors such as Icahn and Loeb were making money. But the two later have come to truce in a CNBC conference. Icahn has gone to the level of calling Ackman a crybaby in the schoolyard. Ackman has also made an attempt with lengthy presentations to prove that Herbalife was indeed a pyramid scheme also setting up a website dedicated to proving it, which raised enough doubt for the federal agencies to check into the issue.
Allegations against Herbalife
Alleged to be a pyramid, the company also faced lawsuit from one of its salesman for which it has to settle the issue with payment of $15 million. The allegations made as part of the lawsuit are that Herbalife operates a pyramid scheme in which the company’s independent distributors make more money through recruiting salesman than through the sale of the products. The company’s members have been contacted by federal law enforcement agencies seeking information about the business practices of the company. William Ackman, one of the first accusers of Herbalife being a pyramid schemes, says he stands by the statement he had made and never has he been contacted by the FBI or Department of Justice about shorting Herbalife stock and then publicly raging a battle against it.
