Herbalife Disputes Ackman's Claim of 'Pyramid Scheme'

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Bill Ackman CEO of Pershing Square Capital Management LP.

Hedge-fund manager Bill Ackman is short the nutritional-supplement seller Herbalife, according to someone familiar with the matter, and has told people he considers the business to be little more than a "pyramid scheme."

Ackman, founder of the $11 billion hedge-fund company Pershing Square Capital Management, put on the bearish Herbalife position about seven or eight months ago, according to the person familiar with the matter, and has spent about a year researching the company.

The fund manager has told people that Herbalife—best known for its weight-loss shakes—is the most compelling short case for a stock he has "ever seen," this person added. A "short" is a bet that a stock's price will decline.

Herbalife CEO Michael Johnson sharply denied Ackman's allegations.

"This is blatant market manipulation," Johnson told CNBC in a telephone interview Wednesday. "This appears to be another attempt to legally manipulate the market by a group of short sellers."

Johnson added: "This is not about Herbalife's business model. This is about Bill Ackman's business model."

"We're not a pyramid scheme, that's a bogus accusation," Johnson added. "We have millions of customers around the world. We don't pay for recruiting. We've been in business for 32 years."

(Read More: Herbalife Under Fire: Clubs, Hopes and Losses .)

A pyramid scheme is an illegal investment scam where contributions from new investors are used to pay off the original investors.

Ackman will provide more details on his short thesis as part of a two-hour presentation at the Sohn Conference Foundation investment gathering Thursday morning in midtown Manhattan, according to people familiar with the agenda.

(Read More: Selling the American Dream: Investigations Inc.)

Herbalife stock has been battered this year amid sharp questions about its business model from a variety of sources, including other hedge-fund managers.

A Belgium court recently ruled that Herbalife was an illegal pyramid scheme. The company, however believes its marketing plan was misunderstood and is appealing the ruling.

(Read More: Herbalife CEO: We're Not a Pyramid Scheme)