Bill Ackman, true to his word, is pursuing his Herbalife Ltd. (NYSE:HLF) short, this time releasing detailed accounts of individual recruiters who have made big profits bringing in new distributors, starting with former Chairman’s Club member Shawn Dahl.

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The story starts in 2004 when a Canadian company called Global Online Systems was shut down by court order and its owners, Deborah Stoltz and Marylin Thom, were convicted of operating a pyramid scheme, but before the court’s prohibition orders were put into effect, the business was transferred to Online Business Systems, a company owned by Dahl.

“Pershing Square believes that Stoltz and Thom are sisters, Nicole Dahl is Stolz’s daughter, and Shawn Dahl is Stoltz’s son-in-law.  Pershing Square further believes that Stoltz recruited the Dahls into the Herbalife scheme, and the Dahls had been active participants in GOS before it was outlawed by the Canadian government,” Ackman’s Pershing Square Capital Management alleges in its report.

Dahl allegedly took over fraudulent business in 2004

According to the report, Dahl was involved in GOS while Stoltz and Thom were involved in OBS – so there wasn’t any substantive change in response to the court order. When Pershing Square first released information about Dahl last June he was pushed out of Herbalife, but that was after almost a decade of allegedly deceptive business practices.

Herbalife Ltd. (NYSE:HLF) has always argued that it gives people the opportunity to earn a living by selling products, and that even though products are sold through ‘lineages’ of recruited distributors, you don’t have to bring new people into the fold to earn a living. Proving that some people have made a lot of money almost purely through recruiting, even when fraud is involved, doesn’t really refute Herbalife’s legal argument that another approach is possible (the multi-level structure isn’t inherently illegal), but it could ratchet up pressure on the courts or regulators to take action if it drives public outcry.

Pershing Square has said that more reports are coming, specifically naming former board member Leslie Stanford and current board member John Tartol as upcoming targets along with other senior distributors.

Herbalife pressures short sellers

Herbalife Ltd. (NYSE:HLF) is doing its part to make life difficult for short sellers, announcing plans to issue $1 billion in convertible bonds for a major stock repurchase, effectively making it easier for others to initiate a short squeeze like the one that cost Ackman millions over the summer.

Herbalife has fallen from its high of $83.51 at the beginning of the year to $62.8 now, but there still seem to be plenty of bulls who would be happy to bet against Ackman’s short position.