Ackman Warns Herbalife Accounting Firm: represents a last ditch effort to prevent the short squeeze

Hi, everyone. Kevin thompson here, MLM Attorney and co founder of thompson, burton. Hope you guys are having a wonderful day. It's a beautiful Friday here in franklin, tennessee. Got four things we're going to chat about today. I'm going to try to do it pretty quick. We've got an update on herbalife. There's been a recent development. I think it's good news for herbalife. We're going to talk about the DS Edge conference coming up in two weeks. We're talking about the Zeke rewards claims process. That ended on September 5th. And the fourth thing, Montana. Montana updated its MLM statute. We're going to briefly talk about that. So let's talk herbalife. Fascinating story. I'm sure you've probably been following it throughout the course of the year. The latest is that bill ackman sent a 50 plus page letter. To price waterhousecoopers, which is herbalife's auditing firm, Warning them that they're on the hook in the event they clear herbalife and validate herbalife's numbers. Now, keep in mind, herbalife has had auditing firms in the past for, I don't know how long they've been publicly traded. But they've been doing this for a while, we can assume. And there hasn't been a single issue. And keep in mind, pricewaterhousecoopers has one of the best reputations in accounting. And they've been in business for over 150 years. Actually, I think more like 160 years. And so, for agman to send them a letter and say, hey, look, we're gonna help you do your job. I think it's a little arrogant. But it also represents something that I think is significant. The game is almost over. So what's happening is a lot of hedge fund managers are going along on herbalife. They've done their homework. They realize herbalife is not a pyramid scheme. It's a good company, good financials, great market, great product, great everything. And they're betting for the long haul with respect to this company. And I think what I've heard. There's talks of herbalife going private. Where they take all the shares off the public market. And it's a private company. And if that happens, the people that are invested Will be well taken care of. If the company goes private, it squeezes out bill ackman. He's no longer a factor. And essentially, he's lost his entire billion dollar bet. Imagine placing a bet a billion dollars. And going out on air on TV and saying, this is the most secure bet. I've ever made. And being wrong, it also comes at a time for bill ackman. Where he was dramatically wrong. On another stock investment. That he made in JC Penney. So not a great year for ackman. But anyway, he sent this letter to herbalife's auditing firm, pricewaterhousecoopers, Telling them, hey, it's a bad company, and here's why the numbers are wrong. Look out for this stuff. I don't understand it. I will be frank. I understand a little bit of it, but not a lot. Anyway, it's included in full on my blog post. There was another analyst who gave his opinion on ackman's letter. And said, nothing really material there. It's not going to delay the process. And so I've included some bullets from that analyst. Rebuttal. But, you know, if you follow football, here's the analogy. It's the fourth quarter, there's two minutes left. Herbalife is down. Ackman is down by 16 points. Kind of time to say it's game over. He's got a score. He's got to get a two point conversion. He's got to get the onside kick. He's got a score again. He's got to get the two point conversion. Right. It's not likely. When he shorted this stock, he assumed two things. And I talked about this in my last video post. He assumed, number one, that his presentation would chill distributor growth. Well, that was the point of my last YouTube video. That didn't happen. The herbalife distributors are absolutely amazing. The industry needed them to win, and they're winning. The distributors weren't paying attention to him. They kept producing, providing good results for the company. So that didn't happen. He then, or he also needed a regulatory action. He had assumed that based on his credibility and his influence and his money, he could move the federal government. And I put it here in the blog post. I'm pretty sure the sec is not going to file an action against herbalife. I'm not a securities guy, but herbalife's been doing this for a long time. And I highly doubt that there's anything funny going on with the numbers. From a pyramid standpoint. They're just not a pyramid scheme. They are just not a pyramid scheme. 0.5% of the inventory gets returned for a refund. And the most compelling statistic, in my opinion, and I've talked about this with a number of people, Some of them doing research on behalf of hedge fund managers. It's really hard to find objective data that proves the motivation, as far as why people are buying the product. Regulators want to see some customer activity to prove that you're not just selling thousand dollar lemonade. The most compelling statistic, in my opinion, if I were to really boil it down to the key, key element. 31% of Herbalife's shipments go to non participants. That was a statistic they put, they published out there In January of 2013, among a lot of other statistics. Of course, herbalife has since done a number of surveys, and they've done this and that. But if 31% of their orders go to customers, that's pretty cut and dry. It tells me that non participants are actually buying the product. Plus, how much inventory is being sold from reps face to face to potential customers. Who knows? Right now, people, they argue, why can't herbalife just say 40% of our revenue comes from external customers, 60% comes from the salesforce. Herbalife could provide that statistic. They could flip a switch and they could provide the data. The question, well, the main issue is they're not required to do it. Number two, the ftc has not once disclosed what an appropriate percentage is. So they provide this data, what's going to happen to it? How will it be scrutinized? What will the critics say? And it's just not worth it. And candidly, the data, it doesn't have a lot of meaning, in my opinion. So somebody not familiar in the industry would say, well, yeah, it shows you who's buying as a participant, who's buying as a customer, and they'd be right. But what the data doesn't tell you is it doesn't tell you why people are buying. It doesn't tell you that out of the distributors that are buying, how much are buying to qualify for commissions, and. And how many are buying for value? The data doesn't tell that. And that's the key here, that's the key to pyramid analysis, is motive, the motivation, what's leading the consumption, what's driving the consumption. If it's opportunity driven demand, you got a problem. But bottom line, 30% of orders get shipped to non participants. That's pretty significant. That means a lot of customers out there. People with no incentive to buy other than value. They're buying it. So that's sort of my bullet approach to explaining the ftc is not going to sue this company. The ftc, what they do is they go in with proverbial loaded guns. They get an immediate injunction on the company, Shut the company down via an ex parte order, Freeze all the Assets. And you've got this sick, starving, dying company. Fighting the federal government. They fold over, it's a done deal. They got herbalife under an immediate injunction, and they. They won. Now, Herbalife, I think, had. I'm sorry. They had a burn lounge. Burn lounge shut down under an immediate injunction. And it didn't turn out well. Burn lounge and all the assets were frozen from day one. Force and high tech, same thing. Ftc comes in, freezes the asset, Puts them under intermediate injunction. And from that position, the company can't really put up much of a fight. That's not going to happen here. Number one, again, herbalife isn't a pyramid scheme. So the ftc isn't going to take an action. Number two, if the ftc did take an action, they would lose the ftc. And it's staffed with good people. This is not in any way intended to be disparaging to the ftc. Great people are at the ftc. But the law isn't really designed. For them to get the companies in the gray. If a company is in the gray, it can make life really difficult for the ftc. And I have written a lot in the past. About the importance of our industry shrinking the gray, Defining the gray. To clearly separate good companies from illegal scams. Masquerading as network marketing programs. I think we do need to define the gray or shrink the gray. And that's a separate discussion for a different day. But the way the law is currently, if the company's in the gray, the ftc, they got a hard, hard road to hoe. They've got to go after the companies clearly in the black, clearly in the wrong. That ain't herbalife. So that's not going to happen. Bottom line, distributors haven't slowed down. Highly doubtful that there's going to be a regulatory action. There shouldn't be one. And so now bill ackman is trying to buy some additional time. By getting this accounting firm to watch out. Even though the accounting firm has been doing business for 150 years. So, bottom line is, I think this saga is about to come to a close. The clock is ticking. When will it happen? Will it happen within the next two months, three months? Who knows? Herbalife, the stock is continuing to climb. And somebody actually favorable to ackman, Somebody who's taken a short position, said, these hedge fund managers that are long on herbalife, they're playing russian roulette. That might be a good analogy, actually. Maybe there's a 1 in 6 chance. There's going to be a really big Problem in the stock business. Those are pretty good odds on Wall street, and apparently they're taking those odds. Flip it. On the other side, Ackman bet a billion dollars on a five out of six shot. So which side do you want to be on? Go along. Number two, DS Edge conference. Direct selling Edge. We're doing it in Nashville, September 26th. Use the promo code LEGALEAGLE. I put it here in the video. Legal Eagle. It'll save you some money on your ticket. And we have a Nashville excursion plan we're gonna have. The content's gonna be amazing. As always, we've got it figured out. We do pretty well with respect to what we provide people. Pay plan consultation. We cover all things legal. We'll cover merchant account processing. We cover MLM software, needs marketing, social media. A lot of topics, a lot of fun. And again, we have that excursion in downtown Nashville. We'll have a private dinner and visit some of the more famous honky tonks in Nashville. And so we figured Nashville was a good location for the people coming from the east. And sure enough, it's paid off. We've got tremendous interest so far. We've sold a lot of tickets. Actually, we've sold about 35 tickets, which two weeks out is pretty significant. So we're looking to have about 50 people at this event. Hopefully, I'll see you there, Zeke. Receivership. Zeek rewards. Zeek rewards is under receivership. The claims process is over. The deadline was September 5th. We did everything we could to let you guys know. We had a substantial email list that we sent. Reminder, file your claim before September 5th. And it turns out a lot of people didn't do that. Which means if you submitted a claim, there's plenty of money in that pot to make it your way. Will you be made whole? I don't know. If you didn't. The receivership sent out emails. He sent out postcards. We sent out a reminder. I know Troy Dooley published some stuff. I mean, it was out there. September 5th was a deadline. Look for this. The net winners, the people that made more money than they lost. The lawsuits are about to happen probably within the next 30 days. I think the SEC is going to file some lawsuits, and I think the receivership will absolutely file lawsuits against people. The receivership actually expected people that made over $1,000 to settle with the receivership. So I don't know that's coming. So if you made money, you need to settle. Call somebody. Preferably, we like Philip Young, who's an attorney pretty close to this firm. We don't make any referral fees or no fee sharing, nothing like that. But he's good. He's a bankruptcy lawyer and he's been able to settle a lot of these matters in an efficient format. Last update Montana. Montana updated its MLM statute. They're trying to mimic the DSA's screening process for member companies. So as of September 1, the only companies properly registered in the state of Montana are DSA members. If you're not a DSA member, you do not have a registration with Montana. They expect you to send information, use their revised form to register your company. And essentially the statute gives Montana more authority. It makes it easier for them to pursue companies even if there aren't that many participants in the state of Montana. It's important. So some people say, well, who cares about Montana? I'm certainly not one of those people. But some people say we don't have much of a business there. Well, look, if you get, if there's trouble in Montana, and take it from experience, because I know this firsthand, even if you have six participants in the state, they'll take action. So even if you have a few participants, if Montana does does something, it's bad for business, period. The reality is you want to be good in all 50 states. You don't want to disregard any one of them. You don't want problems in any one of them. Montana has a revised statute. They want to know about the buyback policy. They require 12 month buyback policy at 90%. They want to know about the products and services that you're offering, the cost of the starter kit, the enrollment fee. They want to know a lot of details. They want to see a copy of the policies. They want to see a copy of the distributor agreement. And so far they've been really good to work with. I've called with a couple of questions. Their office has been really supportive and fantastic. Bottom line, if you're a company and you're not represented by an MLM attorney or anybody, pay attention to Montana because that's a new thing. All that being said, it's been 15 minutes. I think it's a record toast for me. I try to keep them shorter. Hope you're doing wonderful. If you have any questions, leave them in the comments or feel free to visit my blog over at thompsonburton.com mlmatorney you take care of.