America’s highest paid CEO accused of running ‘ponzi scheme’

herbalife1By Rupert Neate
The Guardian

Investor Bill Ackman accuses America’s best paid chief executive, Michael Johnson, of duping salespeople out of $3.8bn America’s best paid chief executive has been accused of duping some of the world’s poorest people out of $3.8bn (£2.4bn) in “the best-managed pyramid scheme in the history of the world”.

Michael Johnson has been accused of misleadingly implying that his Herbalife empire of self-employed salespeople could all become millionaires selling dieting supplements door-to-door.

Bill Ackman, a famous activist investor, launched an extraordinary attack on Johnson and said he had made it his “patriotic” duty to bring the company down.

Ackman claims that 1.9 million Herbalife salespeople from Arizona to Zambia have failed to make money since the company was founded 32 years ago. Each sales recruit would have paid about $2,000 for supplies and training, which Ackman said meant they had collectively lost $3.8bn. Last year Johnson earned $89m, according to financial researchers GMI Ratings.

In a three-and-half hour presentation entitled “how to be a millionaire” Ackman, founder and chief executive of hedge fund Pershing Square Capital Management, accused Herbalife of running a modern day “ponzi scheme”.

Ackman said his hedge fund had built up an enormous short position in the company, which means he is betting its share price will fall.

“Our target price is zero,” he said, “Because we think the business will fail.”

Critics have accused Ackman of talking down the company in order to profit from its plummeting share price, which has dropped 30% since Ackman revealed he was short-selling the stock on Wednesday.

Ackman denied he was motivated by profit, and said he was standing up for millions of poor people who had been led to believe they could become millionaires by reselling Herbalife supplements.

“I don’t want to make money off of this,” he said in an interview with CNBC. “It’s not a happy thing. You’ve had millions of low income people around the world who’ve got their hopes up that there’s an opportunity to become millionaires … and they’ve been duped.

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