Shares of Herbalife Ltd. (NYSE:HLF) remain down by 11% in the wake of this week’s earnings report. Some longs are only beginning to become concerned about the company because of the fundamentals, although they still remain on the buy side. However, short-sellers say they’re even more convinced than ever that Herbalife is a pyramid scheme. One firm notified ValueWalk that it has increased its short position in the stock.

Adding to Herbalife Ltd. (NYSE:HLF) short

Vijay Marolia, chief investment officer of Regal Point Capital Management, says out of all their short positions, Herbalife is their second biggest. He added that they had been planning to add to that position even before the multi-level marketing company’s conference call but that the call just increased his conviction.

One of the biggest complaints about Herbalife’s earnings call was the quality of the call. It was very scratchy and hard to listen to, according to numerous Twitter users and Marolia himself.

Herbalife LTd. HLF
Herbalife LTd. HLF

Herbalife Ltd. (NYSE:HLF) deflects?

Twitter is also rife with another observation he made. Herbalife management started out talking about obesity. Marolia believes that management’s “rant about obesity” was “the most disingenuous part of the call.” He also said the company was simply drawing investors’ attention away from a number of red flags that appeared in its second quarter earnings report.

“For example, cash generation has been shrinking now for three straight quarters,” Marolia told ValueWalk in an email. “On top of that, if they would use a realistic exchange rate for the Venezuelan Bolivar, results would have been even worse. Now they’re putting their eggs in the China basket. Remember, in China, ALL MLMs are illegal—it doesn’t have to be a pyramid scheme.”

How Herbalife could settle the controversy

Marolia also called for Herbalife to settle the questions once and for all instead of spending so much complaining about short-sellers and shelling out millions of dollars on public relations. He thinks that if the nutritional supplements company asked all of its distributors to keep their receipts, it would be able to settle many of the concerns.

“Is that so crazy for a legit company?” Marolia asked. “They have over a hundred rules in their forms with over 48,000 words. They make distributors sign a form saying that they sold product to actual customers, so why not just add one more simple rule and prove once and for all that there is actual demand outside of the network?”

He believes that the answer to his questions is that there isn’t any real demand for Herbalife’s products, calling it “like a ticking time bomb” but one that “may still take a long time to settle.”

Whitney Tilson: It’s the beginning of the end for Herbalife Ltd. (NYSE:HLF)

Fellow Herbalife short-seller Whitney Tilson has also stayed on top of the story – regarding his view of Herbalife over email. In his fifth email about the company in the past few days; he pounced on Herbalife’s latest earnings report. Like Marolia, he is also even more convinced that the company is a pyramid scheme. He already made Herbalife one of his biggest short positions last week before Bill Ackman gave his latest presentation on the company.

Tilson said at one point in the future, investors could be looking back on this week’s earnings report as the beginning of the end for Herbalife.