Herbalife Shares Fall as Ackman Makes New Accusations

Shares in Herbalife fell by more than 2 percent on Tuesday as the hedge fund manager William A. Ackman accused the company, which sells vitamins, shakes and other supplements, of “operating illegally” in China.

Speaking during a conference call that lasted more than two hours, Mr. Ackman, the billionaire founder of the firm Pershing Square Capital Management, called the company’s accounting of its Chinese business as “highly misleading.”

Pointing to internal documents obtained from a former employee at Herbalife, Mr. Ackman argued that Herbalife’s Chinese operations were identical to its business in other countries such as the United States and Mexico. That would be problematic because Chinese laws prohibit any multilevel marketing and direct marketing, Mr. Ackman said.

Herbalife’s shares recovered slightly after the presentation but closed down 1.1 percent for the day at $65.39.

The call was the latest in a no-holds-barred brawl between Herbalife and Mr. Ackman, who in December 2012 announced a $1 billion wager betting that the stock price of Herbalife would fall. Over the past 14 months, Mr. Ackman has lobbied members of Congress to pressure state and federal regulators, particularly the Federal Trade Commission, to investigate Herbalife. He has also paid consultants to help organize protests, news conferences and letter-writing campaigns in four states, as part of an attempt to build momentum for regulators to step in.

Mr. Ackman, who is sitting on $500 million of paper losses on his bet so far, would profit only if the company’s stock spirals downward. During the call, Mr. Ackman remained steadfast in his conviction, saying, “There is no circumstance under which we are wrong,” while poking fun at the company.

But he also offered to compensate whistle-blowers who come forward for any losses they might incur, indicating he was continuing to pursue all avenues to push regulators to look into the company.

“Herbalife’s actions speak louder than their words,” he said, referring to the fact that Herbalife has not opened its doors to the regulators. “The company could exonerate itself by simply inviting the F.T.C. in to investigate.”

By booking royalty fees as hourly consultant pay, the company is hiding the fact that it makes money based on sales to distributors in its network, David Klafter, Mr. Ackman’s lawyer said on the call.

Herbalife is “violating civil and criminal law,” said Mr. Klafter. He later added that the company “will collapse in a flurry of litigation.”

During the call Mr. Ackman orchestrated presentations by Mr. Klafter; Ben Hakim, a Pershing Square partner; and Aaron Smith Levin, the founder of the OTG Research Group.

Mr. Ackman then opened the floor to questions from participants, who emailed them through a website Mr. Ackman has set up. One participant asked whether regulators would investigate knowing that a hedge fund stood to benefit from Herbalife’s collapse.

Mr. Ackman said he expected the government to get involved after the attention brought to the issue by a New York Times article on Monday, adding it was “not my favorite article but it was very helpful.”

Another participant asked Mr. Ackman whether he thought Herbalife would open operations in North Korea. “When they run out of other countries,” he replied, laughing.

Wrapping up the call, Mr. Ackman added: “We would not short Herbalife if we didn’t think it was important for the country.”

In a one-page statement sent in response to Mr. Ackman’s latest allegations, Herbalife said that it “remains confident in its business in China, which is built on customers enjoying and benefiting from our nutrition products each and every day.”