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Herbalife concedes it inflated membership numbers

Hedge fund investor Bill Ackman's week just got a whole lot better.

The multi-level marketing company Herbalife (HLF), which Pershing Square Capital Management's Ackman contends is an illegal pyramid scheme, conceded Thursday in a regulatory filing that its count of "active new members" had been far off the mark.

The count of Herbalife members climbed 2.2 percent globally in the fourth quarter from the year-ago period, not the 16.7 percent the company initially reported in a Feb. 25 conference call. The number of active new members in the U.S. was also much lower than originally disclosed, rising 30.7 percent in the period, as opposed to the 71 percent given in February, Herbalife said.

More than two dozen statistics were misstated, according to the company's filing, which chalked up the errors to database problems. The inaccurate data did not impact its financial results, Herbalife said.

The company, which uses independent distributors to sell its products such as dietary supplements and skin creams, said in February that it's in discussions with the Federal Trade Commission about resolving an investigation into "unfair or deceptive acts or practices."

S&P Global Market Intelligence cut its 12-month target on Herbalife shares by $12 to $56, citing the risk posed by the regulatory investigations.

"While we are pleased that HLF was able to identify and correct faulty data, the corrected figures raise our concerns over long term benefits expected from recent marketing plan changes," Joe Agnese, equity analyst at S&P, wrote in a research note.

Ackman has shorted the Herbalife shares, betting that they would fall and mounting an aggressive pubic relations campaign to persuade other investors that the company is vulnerable. Herbalife's stock price had climbed just over 5 percent so far this year on thinking the government probe of the company would soon be concluded. On Thursday, it fell as low as $51.50, and was lately trading at $52.22, down $.4.16, or 7.4 percent.

While in a protracted battle with Herbalife, Ackman has waged a strenuous defense of another controversial company, Valeant Pharmaceuticals International (VRX), at one point drawing a mocking rebuke from Herbalife. "I hope Bill Ackman has done more research on Valeant than he did on Herbalife," a spokesman for the company said in an October statement.

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