The following article is by Robert FitzPatrick.
Since David Einhorn of Greenlight Capital asked a few questions about where the revenue of the multi-level marketing (MLM) company Herbalife (HLF) originates, a growing controversy over this company was sparked among hedge fund managers, corporate raiders and investor activists. The issue exploded into a forest fire when William Ackman of Pershing Square Capital delivered a 300-slide thesis against Herbalife in which he charged that Herbalife is an illegal pyramid scheme whose stock value should be zero. Some MLM industry figures have joined the fray, arguing that Ackman's thesis is a dagger aimed at the heart of the entire multi-level marketing industry.
It is obvious that our laws have still not caught up to the challenge of defining and explicitly prohibiting the use of pyramid and endless chain money transfers, now called "Ponzi schemes." Perhaps the new battle over Herbalife will finally lead regulators to address this growing problem.
Robert FitzPatrick (copyright 2013)