Herbalife Ltd. (NYSE: HLF) is probably feeling as though it should change its corporate structure to incorporated. With or without its “limited” structure, the company and its shareholders are feeling very limited these days. The company has been called a pyramid scheme and heavily shorted by Bill Ackman of Pershing Square, with the prediction that the company is ultimately going to zero.

24/7 Wall St. is not commenting on the accusations so much here because they are widely known. Our interest is in a poll telling us what you think: Should short-sellers be allowed to go out in public touting their bets against a company? We are asking in the poll below.It is impossible to know what the volume will be on the day before Christmas when the NYSE closes at 1 p.m., but the volume increased each day last week:

• Dec 21, 2012: 43,334,000 shares; $27.27 close
• Dec 20, 2012: 34,508,700 shares; $33.70 close
• Dec 19, 2012: 20,706,100 shares; $37.34 close
• Dec 18, 2012: 3,191,100 shares; $42.50 close

At issue here is not just the ability to make or lose money. This is an issue that ultimately may challenge the freedom of speech. While anyone in the public has the right to express their beliefs, it has been established already that you cannot walk into a movie theater and yell “Fire!” Short sellers would ask how their position is any different from a portfolio manager buying a stock and then touting the position over and over.

The problem is that Bill Ackman is followed widely enough now that his words already have created damage to Herbalife’s shareholders. By publicly accusing companies of being a fraud, jobs are put at risk. Yahoo! Finance shows that Herbalife employs some 5,100 people, and their jobs would all disappear if the company implodes. Revenues for each of the past three years were represented as $3.45 billion in 2011, $2.7 billion in 2010 and $2.3 billion for 2009. Thomson Reuters has a consensus estimate of $4.05 billion in sales in 2012 and $4.5 billion in 2013.

Back to the discussion about whether it should be legal for short sellers to be publicly “talking up” the merits of the bets against a company. Bill Ackman would argue that it was not his allegations that caused the damage but the realization by the public that there is a risk that Herbalife is a sham. Is Herbalife a sham? We will not know for some time.

Things were already bad for Herbalife before last week, but things have gone from bad to worse. The company has now hired Moelis & Company as a strategic advisor and said that it plans to exceed its $50 million to be used for share buybacks in the coming quarters.

Herbalife is now going to hold an investor meeting on January 10. That may not be fast enough. Shares closed at $27.27 on Friday after putting in a new 52-week low, and we now show that 52-week range to be $26.03 to $73.00. Herbalife’s first big drop was at the end of April, when shares cratered to $45 from $70, but the damage went from bad to worse last week. The day before this short position was revealed last week by Mr. Ackman, the stock was at $42.50. Now the stock is down around $27.00.

What is interesting is that Herbalife is still worth almost $3 billion as of today. Ackman’s position has been on for some time, as it turns out and only became public last week, but the damage in market value in the past week was more than $2 billion in market value.

The short interest has risen handily and is likely to be substantially higher at the next two short interest reports. The short interest was 20.7 million shares at the end of November, and that was more than two weeks before his short position was even known. The short interest has not risen every single period, but all in all it has risen since April when the short interest was only 5.9 million shares.

Short sellers using the public is, in some cases, only the opposite of activist investing. Men like Carl Icahn routinely use the media to talk up their book when they call out management for not running their companies properly. Our interest is finding out what you really think here.

So, here is our poll …

[polldaddy poll=6789915]

JON C. OGG

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