A press release issued yesterday by Herbalife, the multi leveled marketing company that produces diet drinks, cites an ABC News report which claims that Bill Ackman, 48, promised a former executive of the company $3.6 million over ten years if the man should lose his job for giving government investigators negative information about the company.
ABC television network’s late night news program Nightline revealed the results of a six month investigation into Herbalife on its Wednesday broadcast. Nightline exposed the fact that Bill Ackman and the former worker only acknowledged their arrangement after a New York Times article uncovered Ackman’s crusade against Herbalife.
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Bill Ackman has acknowledged the deal and has admitted to already paying more than $80, 000 in compensation for lost wages and certain expenses, after previously denying that the deal included any wage compensation. He said that the secret agreement was made when the former worker declined to provide government investigators information about alleged problems at an Herbalife manufacturing plant.
“It was the right thing to do,” Ackman told ABC News. “He is an honest and good man, ” he said in a statement. “I can attest to the strength and quality of his character.”
Federal and state prosecutors and regulators have opened investigations into Herbalife.
More than a year ago, the founder and CEO of Pershing Square Capital Management LP, Bill Ackman made a $1 billion “bet” against Herbalife, which the billionaire describes as a pyramid scheme, in a short sale. Pershing began to short the company’s shares directly in May 2012. It has also lobbied against Herbalife with both state and federal officials.
Mr. Ackman, who has an estimated net worth of $1 billion, has gone on record that he would donate any profits from the Herbalife deal to charity. He denies that he is engaging in “day trading” with the stock and asserts that he is in it for the long term.
Multi leveled marketing companies such as Herbalife rely on sales representatives who are told that they are in business for themselves. These salesmen must purchase the product in advance and are encouraged to bring new people into the company. Each sales rep then gets a commission on all of the sales made by the people they bring in while the people above them get percentages of their sales. The problem is that the later one joins the company the lower down the totem pole he will be and so they will not have much of a chance of making any real money or of ever advancing.
Mr. Ackman maintains that only one percent of Herbalife’s sales associates keep almost all of its annual profits. He feels strongly that this is wrong and so he has made it a personal mission to bring down the company.
Last November, in an interview with Bloomberg Television, Ackman acknowledged that Pershing Square’s short position in Herbalife was as much as $500 million in the red. But he added that he did not care and that he would hold the short, “to the end of the Earth.”
In a statement, Herbalife accused Ackman of offering, “secret, undisclosed payments to individuals and organizations to bring false and misleading charges against Herbalife.” It has described Ackman’s short promotion against the company’s shares an “unprecedented $1 billion campaign to manipulate Herbalife’s stock.”
Bill Ackman’s hedge fund said, “with respect to indemnities provided by Pershing Square to other whistleblowers, including those cooperating with government agencies, these indemnities are limited to legal fees and damages incurred in the event that these individuals are sued by Herbalife, and do not provide for recoveries for lost wages.”
