MANHATTAN (CN) – Major banks and billionaire Carl Icahn helped sustain “one of the largest frauds in history” by investing in Herbalife, which is “an illegal pyramid scheme,” an attorney claims in two federal lawsuits.
Daniel Ravicher filed two similar claims Wednesday in the Southern District of New York.
In his claim against sole defendant Icahn, Ravicher says he “has had and continues to have a substantial investment in a short position in HLF. [Herbalife Ltd.]”
In the Icahn complaint, Ravicher calls himself “a citizen of the great state of Florida,” but he signed both complaints over a New York City address for his law office.
Ravicher filed his first complaint 6 minutes before he sued Icahn. This complaint names as defendants the top officers and board of Herbalife, and includes shareholder derivative charges against Bank of America, JPMorgan Chase and Wells Fargo, whom Ravicher accuses of aiding and abetting the alleged Herbalife pyramid scheme.
Herbalife is not a defendant in either lawsuit, though both complaints describe it as a “fraudulent pyramid scheme.”
Both complaint claim that in 2009 a California court found that “Herbalife’s entire business model appears to incentivize primarily the payment of compensation that is ‘facially unrelated to the sale of the product to the ultimate users’ because it is paid based on the suggest retail price of the amount ordered [from Herbalife], rather than based on actual sales to consumers.”
Ravicher claims this business model satisfies the 9th Circuit’s description of a pyramid scheme.
In early 2011, Herbalife announced a $700 million credit facility arranged by Bank of America, JP Morgan, Wells Fargo and others. Later that year, a Belgian court ruled that it was, in fact, a pyramid scheme, Ravicher says in his complaint against the banks. He claims that the banks added $500 million to the Herbalife credit facility in mid-2012.
Icahn entered the fray months later, “motivated solely by a desire to extract revenge on a former business partner,” nonparty William Ackman, who had successfully sued the billionaire before founding his own hedge fund company, Pershing Square, Ravicher says in his complaint against Icahn.
On Dec. 20, Ackman publicly announced his intentions to short Herbalife, based on what he said was over a year and a half of research, Ravicher claims.
“[T]hat very same day,” Icahn bought Herbalife shares for the first time, even though “he barely even knew HLF existed and had taken no knowledge whatsoever of its business,” according to the complaint.
“[Icahn] is a very wealthy man who believes he is above the law,” the complaint states. “He believes he is better than everyone else because he is a multi-billionaire who can hire minions of staff and attorneys to do his bidding. In this case, he seeks to settle the score with Mr. Ackman and he is willing to do any and everything to accomplish that goal, including violating the law by aiding and abetting a fraud.”
Icahn Enterprises has not issued a statement on the matter.
A spokesman for Herbalife said he had no comment on the allegations.
Ravicher wants the banks and Icahn enjoined from aiding and abetted fraud “by publicly promoting or propping up the share price of HLF,” and damages for aiding and abetting and breach of fiduciary duty.
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