Herbalife's President Calls Ackman's Claims a 'Gross Distortion of Reality'

Herbalife President Des Walsh told CNBC on Thursday that hedge fund manager Bill Ackman's allegations against the company are completely false.

Ackman's Pershing Square has taken a short position in Herbalife — betting a billion dollars the stock will fall — and insists the multi-level marketing company is a pyramid scheme.

"Bill Ackman's claims are a gross distortion of the reality," Walsh said in a "Squawk Box" interview, ahead of the company's planned rebuttal presentation to shareholders and analysts in New York.

"The majority of our distributors become distributors because of their affinity with the product, and they want to receive a product discount," explained Walsh, saying they effectively want to become almost "club members just like in Costco."

"Of those distributors who come for the business opportunity absolutely they make money. ... Our core training for a distributor who wants to build a business is they talk to 10 customers a day — 10 people a day — about the products, the business opportunity." Walsh also claimed that he has not talked to any distributors who are following that model and not making money.

Herbalife hired well-known attorney David Boies, chairman of Boies, Schiller & Flexner, a week before Christmas to look into what he calls a "rash of inaccurate statements" made about the company. Boies told CNBC in an interview Thursday that Herbalife may have a case against Ackman, who delivered a presentation on his claims Dec. 20.

"Pershing Square is going to have to decide why it's making those kind of statements," Boies said. "If we were ever to litigate it, maybe we'd get some discovery about it."

Taking the other side of that trade, rival hedge fund manager Dan Loeb stepped into the fray on Wednesday, when a regulatory filing showed that Loeb's Third Point has taken an 8 percent stake in Herbalife.

Loeb called Ackman's short thesis "preposterous," taking a long position worth about $350 million.

(Read More: Why Loeb Is Long Herbalife)

Meanwhile, activist investor Carl Icahn is said to be lining up on Loeb's side. The New York Post quoted sources who say Icahn has also taken a long position in Herbalife.

The Securities and Exchange Commission enforcement division has opened a probe into Herbalife, according to sources cited by The Wall Street Journal and The New York Times.

CNBC Investigations, Inc. has been working on a report on multi-level marketing and Herbalife for 10 months and has released a documentary called "Selling the American Dream."

(Watch Full Video Documentary: From High Energy Clubs to Dashed Dreams: Herbalife Tales)

By CNBC's Matthew J. Belvedere; Follow him on Twitter @Matt_SquawkCNBC

Contact U.S. News


    Get the best of CNBC in your inbox

    › Learn More

Don't Miss

U.S. Video

  • Mad Money's Jim Cramer breaks down the theme of stealth technology stocks. Cramer says companies that are using proprietary technology to invent entirely new markets and then dominate those markets, fall under that category.

  • Mad Money host Jim Cramer knows it can be difficult to stick with a stock that is going lower but says if you've done the homework, and the story isn't wildly off the rails, then stay long.

  • Mad Money host Jim Cramer, outlines the most common emotionally driven investor mistakes and expresses why it is important to not let skepticism run away with you.