Case against Herbalife not proven Move over, Broadway. The must-see show in town right now is on Wall Street, where the War of the Hedge Fund Moguls has just erupted over nutritional supplements seller Herbalife. Pershing Square's Bill Ackman asserts that the $4bn company is an illegal pyramid scheme; he has shorted Herbalife to the tune of about $800m. Third Point's Daniel Loeb obviously disagrees - he has bought an 8 per cent stake; reports suggest that activist investor Carl Icahn may also be buying. They cannot all be right. Herbalife on Thursday went to great lengths to rebut Mr Ackman's allegations, which centre on his assertion that Herbalife distributors earn the bulk of their income by recruiting others who pay to join rather than by selling its products - a classic feature of a pyramid scheme. Herbalife's shares initially jumped nearly 8 per cent but rapidly fell to trade 3.5 per cent lower. So it clearly has not dispelled all doubts. True, the shares have rebounded from their lows after Mr Ackman's 334-slide demolition job on December 20. But he was not the first hedge fund boss to train his sights on Herbalife. Greenlight Capital's David Einhorn raised disclosure issues in May, which sent its shares crashing by a third to $46. They remain 15 per cent shy of even that level. There is something cult-like about Herbalife. That might be the legacy of its founder, Mark Hughes, who died in 2000 at 44 of a drug overdose - hardly a good advertisement for a healthy lifestyle peddler. And the dietary business invites scepticism. But it has survived, and been a good investment, trouncing the Russell 1000 by 300 percentage points since listing in 2004. Net income rose 115 per cent between 2007 and 2011. Mr Ackman has identified the tension in Herbalife's business model between being a product company and a distribution network. He has not proven that the model is illegitimate.