More disappointing news on the legal front today. Herbalife is in the clear after years of dogged pursuit accusing them of fraud.
Herbalife Ltd won the dismissal of a lawsuit that claimed the maker of weight-loss and nutritional products fraudulently portrayed itself as a legitimate company, and that shareholders lost money because it was actually an illegal pyramid scheme.
U.S. District Judge Dale Fischer in Los Angeles said on Monday that shareholders led by two pension funds did not show that questions raised about Herbalife’s business by hedge fund manager William Ackman and various investigators showed that the company had fraudulently inflated its stock price.
Fischer rejected claims in the proposed class action that news about concerns from Massachusetts Senator Edward Markey, a Federal Trade Commission probe, weak quarterly results, and even questions raised by Ackman and hedge fund manager David Einhorn were “corrective disclosures” that revealed Herbalife’s fraud.
Herbalife always denied they were a pyramid scheme. The judge decided there was nothing hidden here so there was no fraud involved.
We have frequently reported on the troubles facing Herbalife, a company that sells nutrition, weight management and skin-care products through distributors, not directly to customers. There is no doubt that this is multi-level marketing where participants profit off of recruiting others more than from the sale of actual products. There are plenty of companies that do this. [Edited – removed company names] It’s not illegal. Herbalife was claimed to be profiting off of investors, not the product itself.
Hedge fund manager, Bill Ackerman has made sinking Herbalife a personal quest since 2012. He thought he could deliver the death blow to the company by convincing investors to pull out based on his expose of deceptive practices. It didn’t work.
The bottom line appears to be that the individual investor must be ultra careful about stepping into such a situation. No one can protect you from your own ignorance and lack of math skills or sound judgement.