The dicey recruiting methods used by Herbalife distributors, which the company said would be banned as of June 30, are still happening, hedge-fund titan Bill Ackman claimed in a letter sent Monday to his investors.
Herbalife, fighting claims by Ackman that it is a pyramid scheme, said it would ban distributors from selling leads through related companies that troll the Internet for new recruits.
The Herbalife distributors would then sell the recruit names for about $50 to $100 a piece to newer distributors. The practice, considered indicative of a pyramid because it focuses solely on recruitment, is believed to have become even more lucrative than selling Herbalife products.
Despite the ban, the practice “continues to this day,” Ackman wrote in the letter to investors in his Pershing Square hedge funds.
Herbalife did not respond to a request for comment.
Ackman’s letter comes about a year after he made public his $1 billion short against the Los Angeles company — saying its shares would go to zero after US regulators shut it down for being a pyramid scheme.
Instead, shares of the nutritional supplements company have more than doubled this year and Ackman has rung up a paper loss of about $600 million.
In October, Ackman restructured his short to better weather the prolonged stock increase.
A re-audit of the company’s books completed last week — which Ackman had hoped would reveal accounting irregularities — showed instead no “material” problems. The re-audit helped fuel an 18 percent rise in Herbalife shares last week.
The shares closed Monday at $80.81, up 0.3 percent.
Still, Ackman is not about to give up — or give in, he told investors.
In the letter, a copy of which was reviewed by The Post, he said his probe of Herbalife has uncovered more missteps — but that he would not reveal them until next year.
The head of the $12 billion hedge-fund firm said he will in 2014 release more detail in “one or more future presentations and/or other communications” on the continued use of now-banned Internet-based lead generation systems used by top Herbalife distributors. Ackman will also show how Herbalife’s Chinese operation likely violates multi-level marketing restrictions in that country, and how Herbalife nutrition clubs are actually recruitment centers for low-income Latinos.
In the letter, Ackman pointed to the large “followership” in the stock, referring to the “impact of high-profile early investors” (like Carl Icahn) and said the much-talked-about short squeeze could work in reverse if “one or more of the large shareholders were to exit” for any reason.
But Ackman also warned his investors that Herbalife stock isn’t likely to decline “until regulators take action.”
“The Herbalife Bulls are unlikely to be swayed by anything other than the public disclosure of regulatory action against the company,” Ackman wrote in the letter.