Traders work at a post that trades Herbalife stock on the floor of the New York Stock Exchange in January 2013. Picture: REUTERS
Traders work at a post that trades Herbalife stock on the floor of the New York Stock Exchange in January 2013. Picture: REUTERS

HERBALIFE said on Thursday it had misstated for months a measure of its business that it created to defend itself against activist investor William Ackman’s accusations that it was a Ponzi scheme.

The nutritional-supplement maker said that "database scripting errors" led it to misreport the number of active new members, a metric that it first mentioned on a call with analysts and investors in August. It gave incorrect figures 28 times over three earnings calls. Herbalife said the error would not change its audited financial results.

For example, the company originally reported its active new members rose 8.3% for 2015, but now says the correct amount was a 3.4% increase.

The admission is a victory for Mr Ackman, who has waged a three-year battle against the company. Mr Ackman argues that Herbalife overstates the actual number of customers buying its protein shakes, dietary supplements and other products. Herbalife denies the charges and says the investor is trying to manipulate its share price.

Herbalife didn’t respond to request for comment. Representatives of Mr Ackman declined to comment. The company’s volatile shares fell 8.5% to $51.59 in trading on Thursday afternoon.

Investors in Herbalife’s stock have been on a roller-coaster ride. The share price dropped as low as $26.06 after Mr Ackman first disclosed a large bet against the company in December 2012. Other investors, including billionaire Carl Icahn, came to its defence and the stock has rallied 85% in the last year.

Mr Ackman is still underwater on his investment. He said his Pershing Square Capital Management needs Herbalife shares in the low-to-mid $30 range to break even. Metrics related to membership growth are closely watched because Herbalife generates much of its sales from members, either directly or when they act as independent distributors to consumers.

The company has not given a comprehensive definition for active new members.

Herbalife overstated the growth of the metric 14 times and understated it 12 times. Herbalife overstated by an average of 20.5 percentage points and understated by an average of 3.2 percentage points. Two of the 28 mistakes reflected incorrect time periods.

Hedge-fund manager Whitney Tilson, who has taken a short position in Herbalife, wrote on Thursday that the errors called into question the company’s internal controls and highlighted that its business model "is so complicated that not even the company itself can get its arms around it."

Tim Ramey, an analyst at Pivotal Research Group, played down the news, saying the amended metrics were nonfinancial measures and resulted from an error by the company’s sales team that drafted scripts for Herbalife’s earnings calls. Mr Ramey, who has a "buy" rating on Herbalife shares, previously served as a paid consultant to one of Herbalife’s largest investors.

In its regulatory filing on Thursday, Herbalife said it gave the incorrect figures on earnings conference calls but the misstated numbers were not included in financial reports filed with the Securities and Exchange Commission.

Herbalife blamed data-collecting errors, which lead it to include data in 2015 that wasn’t included in 2014, as well as "quarterly aggregation issues". The company said it did not "discover these errors earlier because it had limited visibility into the likely rate of change in this metric upon its first use."

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