Carl Icahn and Herbalife’s banks are helping the distributor of nutritional and weight loss products continue “one of the largest frauds in history,” a New York lawyer who is an investor charged in a lawsuit today.
Icahn, by becoming the largest single shareholder in the Los Angeles company, with a 15.9 percent stake, and the banks, by lending the company money, “aided and abetted” Herbalife’s fraud, the lawsuit, filed in Manhattan federal court, claims.
Herbalife, a multi-level marketer at the center of a swirling, much-watched Wall Street battle, has been labeled a pyramid scheme by noted short-seller Bill Ackman — who has made a $1 billion short bet on the company’s stock.
Herbalife executives, who have strongly denied the accusation, have not been charged by any US regulator with any wrongdoing.
The suit was filed by Daniel Ravicher, an investor and lawyer who manages several private investment funds, who said he has a “substantial short” position in the stock.
Ravicher says Icahn is motivated “solely by a desire to exact revenge” on Ackman, who bested him in a legal battle after a 10-year court dispute.
Ravicher accused Icahn of “scheming” to settle a score, “stating on public television that he hopes to create the ‘greatest short squeeze of all time’” on HLF.
Icahn’s comments were made in a riveting half-hour debate between him and Ackman that was broadcast on CNBC.
Ravicher’s argument rests on the allegation that Herbalife is a pyramid scheme “because it has a compensation program based primarily on providing payments to participants for the recruitment of new participants, not on the retail sale of products or services,” quoting prior legal cases that were settled out of court.
Ravicher is also an investor in the three banks he sued — Bank of America, JPMorgan Chase and Wells Fargo. The three have extended a line of credit to Herbalife, which Ravicher argues exposes them to “criminal and civil liability.”
The lawyer has previously notified the CEOs and generals counsel of the banks in writing of the “HLF fraud” and asked them to stop lending to Herbalife, but they’ve ignored him, the suit alleges.
Icahn did not respond to a request for comment. Wells Fargo and JPMorgan declined to comment, and Bank of America could not be reached.