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Shares of the nutritionist company Herbalife Ltd (HLF - Snapshot Report) fell more than 11% yesterday after activist investor William Bill Ackman, hedge fund manager of Pershing Square, once again accused it of fraud in the name of nutrition clubs, as per media reports. Ackman stated that he has evidence that Herbalife is operating illegally and he will furnish the same at a presentation in New York on Jul 22.

The billionaire investor stated that he has investigated the operations of Herbalife's nutrition clubs for two years and now has hours of recorded video and audio as evidence to prove his allegations. He stated that he also has internal documents given to him by Herbalife’s employees.

Herbalife, in relation to this, had issued a statement yesterday that its business has a positive impact in promoting health and wellness across the United States and helps people earn extra money. It also stated that all Herbalife members get extensive corporate training before opening a nutrition club and are monitored by the company.

Herbalife’s business practices have been criticized since Dec 2012, when Ackman first accused the company of making money by recruiting new sales people and not from its sales. Ackman also unveiled a $1 billion short position in the company's shares in 2012.

In Mar 2014, media reports stated that the billionaire investor told his clients that Herbalife is likely violating multi-level market restrictions in China. (Read: Herbalife Faces Another Ackman Attack).

Earlier in Jan 2014, First Financial Daily, a Chinese newspaper, suspected Herbalife of adopting illegal marketing practices in China. Later in the same month, the Canadian Competition Bureau announced a formal investigation into the pyramid scheme business model complaints against the company, as per a report by New York Post.

This Zacks Rank #2 (Buy) company, on its part, has been denying the charges since 2012. The company also came out clean in Dec 2013 when its UK-based auditor PricewaterhouseCoopers (PwC) completed the re-audit of more than three years of financial statements and found no material changes in them.

Herbalife is not the only company, which employs sales representatives to sell its products. Other multi-level marketing companies like Nu Skin Enterprises Inc. (NUS - Snapshot Report), USANA Health Sciences Inc. and Avon Products Inc. (AVP - Analyst Report) also follow the same distribution model. 

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