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TheStreet Open House

Herbalife Investors Unmoved by Ackman's China Claims

NEW YORK ( TheStreet) -- With shares of Herbalife (HLF) climbing well over 5% this morning to $69.05, Wall Street apparently does not cares about Bill Ackman's recent complaints.

Aside from being a notable short, Ackman insists that the nutrition and weight-loss company is a "pyramid scheme." Ackman has had a long battle with Herbalife.

On Tuesday, the activist investor launched a few more attacks. According to Bloomberg, Ackman, along with his firm Pershing Square Capital Management LP, hired OTG Research to evaluate Herbalife's China operations.

Ackman says the investigation discovered that illegal payments were made to people by Herbalife, based on the number of new recruits they're able to bring to the company. If true, this would breach direct-selling laws in China.

During Tuesday's two-hour presentation, Ackman said of Herbalife, "They defraud millions of people." Ackman then continued, "Their portrayal of their China business in their SEC filings is materially false and misleading."

Herbalife is not taking these accusations lightly. In response to Ackman, the company said:

"Herbalife remains confident in its business in China, which is built on customers enjoying and benefiting from our nutrition products each and every day."

Herbalife continued:

"We will continue to invest in this important market and collaborate with the Chinese government to deliver high-quality nutrition to the Chinese consumer through lawful direct-selling practices."

And regarding Ackman's presentation, Herbalife insists that the only thing it accomplished was to reveal Ackman's "continued failure to fundamentally understand Herbalife's business model."

So what's an investor to do in this situation?

We have no way of knowing whether Ackman's thesis is true. The truth may come to light somewhere down the road. But as it stands, it's his word against Herbalife's.

It also can't be ignored that Ackman wants to be right on his short position. After all, he has a price target on the stock of $0 and is bearish roughly 20 million shares.

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