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Herbalife executives head to DC to explain business model

A Herbalife logo is shown on a poster at a clinic in the Mission District in San Francisco, California April 29, 2013. REUTERS/Robert Galbra
A Herbalife logo is shown on a poster at a clinic in the Mission District in San Francisco, California April 29, 2013. REUTERS/Robert Galbra

By Svea Herbst-Bayliss

BOSTON (Reuters) - Herbalife executives will meet with U.S. lawmakers' staffs in Washington on Friday to explain the business model of the nutrition company that has been fending off accusations by billionaire investor William Ackman that it is running a pyramid scheme.

Herbalife Chief Financial Officer John DeSimone and other company representatives will host a session where Congressional staff members can ask questions about how the company's direct selling business works, according to an invitation sent by the lobbying firm Raben Group and seen by Reuters.

An Herbalife spokesman confirmed the planned meeting and said: "We look forward to educating Congressional staffers about the important economic impact of the direct selling industry and our company, and answering their questions."

The meeting suggests that Herbalife is stepping up its lobbying efforts in Washington at the same time as Ackman is stepping up his campaign against the company.

For more than a year, Ackman has been betting that Herbalife's share price will collapse amid regulatory scrutiny, but so far his $1.16 billion short position has left him with paper losses as the stock price has climbed.

Ackman's rivals, including Carl Icahn, have lined up against his short bet by taking stakes in Herbalife.

Last month Senator Edward Markey, a Massachusetts Democrat, waded into the battle by requesting details from Herbalife about its business model, how members earn compensation, and whether it targets minorities as civil rights groups have alleged.

Boston City Councilor Tito Jackson and Massachusetts state Senator Sal DiDomenico have also called for an investigation into the company, as have lawmakers from California, New Mexico, Nevada and New York.

U.S. regulators have declined comment on whether they are conducting investigations into Herbalife. Herbalife has repeatedly denied running a pyramid scheme, a model in which participants are paid solely to recruit more members into the scheme.

On its quarterly earnings call this week, Herbalife said it has answered all of Markey's questions. The company sent a letter dated February 18 in which it denied accusations it is running a pyramid scheme.

Markey's spokeswoman, Giselle Barry, said he is reviewing the answers and waiting for responses from the Securities and Exchange Commission and the Federal Trade Commission, whom he asked to probe the company.

Herbalife's Johnson has said that the bulk of Herbalife distributors join up to get discounts on products they use themselves and that only 4 percent of them want to turn selling Herbalife products into a full-time job.

Ackman has countered that claim, saying the company's videos suggest that anyone can get rich quickly by selling Herbalife products and they prompt many to spend thousands of dollars trying to build a business that often fails.

Ackman told his investors at a dinner last week that his $12 billion Pershing Square Capital Management began putting on its short position against Herbalife on May 1, 2012 and that the stock has appreciated by 23 percent since then, according to a presentation seen by Reuters.

(Reporting by Svea Herbst-Bayliss; Editing by Richard Valdmanis and David Gregorio)

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