product in order to realize a significant return on investment. Many of these Latinos are ending up in serious
debt as a result of Herbalife’s recruitment and illegal business practices.
We believe that Herbalife’s r
esponse to our initial presentation and its actions over the course of this year are notable. In our experience, there is a high degree of correlation between the
accuracy of a short seller’s arguments
and the aggressiveness with which the target company attacks the short seller. In contrast, in cases where a short seller is wrong, the target company typically responds by providing full transparency to the investing public in lieu of attacking the short seller. On January 10
, Herbalife management publicly committed to answer any questions from Pershing Square, but later refused to answer even one of our questions that we thereafter released publicly to the Company. Herbalife continues to be unwilling to collect and disclose its distributors
retail sales data which could serve to dispel some of the concerns we have identified. Instead, Herbalife has focused its resources on attacking Pershing Square.
In our experience, Herbalife’s response to Pershing Square is unprecedented in the history of
short selling. The Company has hired public relations firms, lobbyists, law firms, an investment bank, and paid-for spokespeople to attack us in the media, on social networks, and in the halls of Congress. Herbalife has spent tens of millions of dollars attacking Pershing Square, going so far as to engage Moelis & Company in a campaign to convince Pershing Square investors to redeem from the Funds in an attempt to force us to exit our position. Moelis & Company even offered to stop this campaign if we would agree to no longer push our regulatory agenda and to refrain from any further public statements. We believe that the Company and Moelis may have recently abandoned this campaign as a result of media scrutiny. If Herbalife were confident it was not in violation of the law, instead of lobbying Congress to stop the FTC from launching an investigation, it would welcome an FTC investigation into the issues we identified. Similarly, its conference calls would not be limited to questions from only the most bullish analysts and buyside investors. When Kinder Morgan and its CEO Rich Kinder were attacked by short sellers many years ago, Rich Kinder held an open conference call in which he welcomed short sellers, and kept the call open for hours until all questions had been asked and answered. We note that on Herbalife earnings calls CEO Michael Johnson only reads prepared remarks and no longer answers questions. We challenge Mr. Johnson and Herbalife to respond to our questions and for the Company to invite the FTC to examine its business practices. If Herbalife is truly a legitimate operation, why would it not welcome a thorough investigation by its regulators to dispel what it calls
“confusion” about its b
usiness? Beginning in early January and up until the present, we have been contacted by a number of former Herbalife employees who have shared with us additional information that confirms the
illegality of the Company’s business practices.
We have also communicated with hundreds of former Herbalife distributors who have shared their stories of being seduced into the so-called
Herbalife “business opportunity
” and mani
pulated into spending thousands, and often tens of thousands, of dollars on the false hopes of financial success as a distributor.