Bill Ackman is still convinced Herbalife is a pyramid scheme and says he has new evidence to prove it.
The nutritional supplement company continues to use controversial recruiting methods that it banned in June and its operations in China "likely violates the multi-level marketing restrictions in that market," the founder of hedge fund firm Pershing Square Capital Management said in a letter to investors Monday.
Ackman unveiled his $1 billion short bet against Herbalife in December 2012, calling the business a fraud. The Los Angeles-based company has aggressively fought those allegations and the stock price has increased dramatically in 2013.
That has caused hundreds of millions of dollars in paper losses for Ackman and investors in his hedge fund. But Pershing Square's flagship fund has gained on other bets, including railroads and real estate; it's up more than 10 percent net of fees.
Ackman said Herbalife's so-called lead generation recruiting methods—whereby top company distributors sell prospect names to new Herbalife vendors for about $100 each—continue despite the parent company saying the practice had stopped.
The letter said that $12 billion Pershing Square would soon explain more detail on that claim and its belief that Herbalife's China business could be illegal.
Ackman added that recent developments which caused Herbalife stock to rally were misleading.
First, he claimed the rationale behind a Belgian court decision to overturn a ruling that Herbalife was a pyramid scheme isn't consistent with U.S. law. And PricewaterhouseCoopers's completed re-audit of the company's books on Dec. 16 is also inconsequential, he added.
"Herbalife is not an accounting fraud; it is a business opportunity fraud that relies on deception," Ackman wrote, noting that Enron, Worldcom, and Adelphia got clean audits from major firms.
A spokeswoman for Herbalife didn't immediately respond to a request for comment. Pershing Square also wasn't available.
"We continue to believe that our Herbalife short position offers an extremely compelling, and, as now structured, even greater asymmetric payoff than before because of the stock price's substantial rise," Ackman said in the letter.
(Read more: Herbalife plans to get back to 'business as usual')