Kellogg School Of Management Professor Wrote A Paper On How Herbalife Is NOT A Pyramid Scheme

Activist investor Bill Ackman has generated a great deal of buzz since revealing his massive short position on Herbalife -- a multi-level marketing company that sells weight loss and nutritional supplements -- but that doesn't mean everyone agrees with him.

Ackman's hedge fund Pershing Square Capital Management believes the company is a "pyramid scheme" and is shorting around 20 million shares with a price target of zero.

By pyramid scheme, Pershing Square believes that Herbalife's distributors earn more than 10 times by recruitment than selling the product to actual retail consumers [.PDF]. This, Pershing Square says, incentivizes them to bring in new recruits who will only be disappointed at the bottom.

Herbalife will hold an analyst and investor day on Thursday to rebut Ackman's claims.

A tipster passed along a paper published by Professor Ann Coughlan at Northwestern's Kellogg School of Management published last July stating that Herbalife "fails to meet any of the criteria for an illegal pyramid scheme."

Here's a chart of the points she makes in her 6-page paper assessing Herbalife as a legitimate MLM. (Disclosure: the paper was prepared with the financial and data support of Herbalife)

We reached out to Coughlan for further comment, but haven't heard back at the time of publication. You can read her full assessment here [.PDF]>

Shares of Herbalife are down more than 13% since Ackman confirmed his short last month. At one point, the shares tumbled more than 38%.

SEE ALSO: Bill Ackman's complete presentation taking down Herbalife >