Federal investigators investigating Herbalife are uniquely equipped to answer that question at the heart of Bill Ackman's $1 billion bet against the company.
Sixteen months after going public with his claim that Herbalife is a pyramid scheme, the hedge-fund manager has failed to force it to disclose receipts crucial to his thesis. The records, which Herbalife's 550,000 U.S. distributors are required to hold, might prove whether its protein shakes and vitamins are actually bought by consumers seeking healthy products or merely by distributors trying to get rich quickly.
The Federal Trade Commission, which is investigating the company after Ackman's aggressive lobbying, can end the stalemate by forcing Herbalife's distributors to disclose such sales records. Though the receipts aren't automatically submitted to the company, Herbalife routinely audits the records for compliance, and the FTC may seek those results as well.
Herbalife, which has denied Ackman's claims, disclosed in March that the FTC had started a civil probe into its practices after months of lobbying by Ackman and his New York-based Pershing Square Capital Management LP. The FBI is also investigating, and Illinois Attorney General Lisa Madigan is examining consumer complaints against the company.
Herbalife has said it is cooperating with the FTC probe and welcomes the opportunity to clear up "misinformation in the market." But the Cayman Islands-based company has said it has no knowledge of an FBI investigation.
The company commissioned a Nielsen survey last year that estimated about 7.9 million U.S. adults purchased its products for personal use in the previous three months. The online survey of more than 10,000 people was conducted in April and May.
Of the 349 survey respondents who said they had purchased for personal use, 87 percent said they didn't buy as a distributor themselves. Most bought weight-management products, the company said.
In a 2012 study, also commissioned by Herbalife, Los Angeles-based Lieberman Research Worldwide surveyed 2,000 people intercepted on mainstream websites in a common consumer research technique. About 5 percent of respondents had purchased an Herbalife product within the past three months. Of those, about 78 percent said they weren't registered distributors.
Ackman isn't satisfied.
"Herbalife has incurred substantial expense in commissioning surveys while it has avoided collecting contractually available empirical data which would answer questions about the sales of Herbalife products to end consumers," he said in a June statement.