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As per media reports, hedge fund manager William A. Bill Ackman sent a letter to its investors continuing to blame nutritionist company Herbalife Ltd (HLF - Snapshot Report) for improper recruiting methods. Ackman, who is the founder and CEO of hedge fund Pershing Square Capital Management LP, told his clients that Herbalife is likely violating multi-level market restrictions in China. His findings are currently with the regulators but are expected to be disclosed to investors soon.

Since the past year, the company has been facing accusations by Ackman and the Belgian consumer organization Test-Aankoop regarding its pyramid scheme business model. Ackman has blamed Herbal Life of running a pyramid scheme business model, i.e. deceptive marketing practices employed for improving business. The company was accused of making money by recruiting new sales people and not from its sales. However, on Dec 3, 2013, a Belgian court quashed the allegations and stated that the company’s sales model complied with Belgian law.  

Moreover, HerbalLife’s financial statements have also been found to be devoid of any discrepancy. Herbalife’s UK-based auditor PricewaterhouseCoopers (PwC) completed the re-audit of more than three years of financial statements on Dec 16 and found no material changes to its prior financial statements. Shares of this Zacks Rank #2 (Buy) company rose about 8% after the announcement of re-audited results.

Ackman has however stuck to his short sale position on Herbalife and promised new information regarding the company in 2014. On the other hand, another investor Carl Icahn has been supporting Herbalife and increased his stake in the company.

The re-audit came after PwC was engaged as Herbalife’s new independent auditor. Herbalife’s former auditor, KPMG LLP (KPMG) resigned in May following insider trading allegations against an executive of the accounting firm.

Other Stocks to Consider

Some other stocks worth considering in the retail sector include Conns Inc. (CONN - Snapshot Report), Haverty Furniture Companies Inc (HVT - Snapshot Report), and Best Buy Co., Inc. (BBY - Analyst Report). While Conns holds a Zacks Rank #1 (Strong Buy), Haverty and Best Buy Co. carry a Zacks Rank #2.

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