Herbalife CEO Casts Doubt on Ackman's Motives in Shorting Stock

A weeks-long war of words between influential hedge fund manager Bill Ackman and Herbalife opened a new chapter, with CEO Michael Johnson questioning Ackman's motives for shorting the company's stock, telling CNBC that his pledge to donate any profits to charity was "fungible."

The company and the head of Pershing Square Capital have been embroiled in a series of verbal volleys over the nutrition company's business model, which relies heavily on multi-level distributors to sell its products.

In December, Ackman called Herbalife—maker of weight-loss shakes and nutritional supplements—a pyramid scheme, making a $1 billion bet that its stock would fall. He has publicly said he would donate any profits from shorting the stock to charity.

Yet on Thursday, Herbalife's brass struck back. In a presentation designed to directly rebut Ackman's criticisms, the company defended its business model.

(For more on multi-level marketing, see CNBC's documentary Selling the American Dream: Investigations Inc.)

In a live interview, Herbalife's CEO called some of the hedge fund manager's claims "strange," and raised doubts about whether he'd really donate the proceeds of his short Herbalife positions to the needy.

"Let's be honest with each other, here," Johnson said. "He's going to donate all of his profits to charity? He's got participants in that (hedge) fund. He's got all sorts of different people who are making money on that fund. Who knows where it's really going? Those charity costs for him are fungible."

But Johnson retracted a previous statement that 90 percent of the company's sales are outside of its distribution network, one of the key issues in the controversy over Herbalife's business model.

"It was a misstatement," Johnson said. "Ninety percent of our distributors who are buying our product are buying it for one reason—self consumption."

Johnson declined to estimate the percentage of sales to non-distributors.

The number of Herbalife's distributors is a key point of contention for Ackman. The company's multi-level marketing model, where distributors earn more by recruiting other sellers instead of selling the product itself, sends profits flowing to the top.

Primarily for that reason, Ackman has waged a very public campaign against the nutrition company, calling it a "pyramid scheme" and maintaining a short position on the stock for months.

At an analysts conference in New York Thursday, Herbalife's CEO insisted that its direct selling business model is legitimate and that the company has been in business for more than three decades. Herbalife president Des Walsh told CNBC on Thursday that Ackman's allegations against the company are completely false.

The battle between Ackman and Herbalife took a new twist on Wednesday, when another hedge fund manager, Dan Loeb, disputed Ackman's claims and announced he had taken an eight percent stake in Herbalife's stock. (Read more: Activist Investor Dan Loeb Takes 8% Stake in Herbalife .)

Reports have surfaced that the Securities and Exchange Commission has began an inquiry into Herbalife's business model. In his interview, Johnson designed to comment. In afternoon trading on the New York Stock Exchange, the stock tumbled more than three percent to $37.68, giving back a chunk of the prior day's rally.