| The hedge-fund equivalent of Stalingrad grinds on. Two weeks ago, the Federal Trade Commission launched a formal investigation into Herbalife, asking whether the company is set up as an illegal pyramid scheme — a process that could take 12-18 months. The move, which is "not an indication of wrongdoing", nevertheless caused Herbalife's stock to drop from more than $66 a share on March 10 to $53 today. On Saturday, with the stock at $49, Bloomberg reported that Bill Ackman is near breaking even on the $1 billion short he's had against the company since December 2012. (Ackman was down as much as $500 million near the end of last year.) A New York Times article earlier this month laid out the way Ackman has taken to lobbying Washington to influence the outcome of this investigation. "So far, Mr. Ackman has persuaded four members of Congress, a New York State senator, a City Council member in Boston, the majority leader of the Nevada Senate and other elected officials in California to join the cause", the NYT writes. Felix calls this move the Buffett Arbitrage. Ackman's essentially betting his money on being able to influence legislation: "except that instead of trying to reduce the influence of money on politics [like Buffett], he's trying to turn it into a trading mechanism". "There is a lot of confusion about what constitutes a pyramid scheme, and that confusion is largely the FTC's fault", writes Dan McCrum, who has a definitive series of posts on Herbalife over at Alphaville. The central question here is not whether Herbalife's business model is structured like a pyramid, but whether it's illegally structured like a pyramid. Herbalife's products are sold through distributors, and the only real way to make money is for current distributors to recruit more distributors. Vikram Bath has a good overview of the subtle differences between a legal multi-level marketing company and an illegal pyramid scheme. The most recent debate centers around "internal consumption", or how much Herbalife product is consumed by Herbalife distributors rather than being sold to other customers. Ackman's charge that Herbalife is a pyramid scheme comes from a paper by Peter Vander Nat, who defines a pyramid scheme as an organization from which "the participants obtain their monetary benefits primarily from recruitment rather than the sale of goods and services to consumers". Herbalife, explains McCrum, argues that just because a company meets that criterion, that doesn't make its business a pyramid scheme. The company says many of its "distributors" aren't really distributors at all, but just signed up for the program to get the product at a discount, not to sell to other customers. Today it launched a website countering Ackman's pyramid scheme claims. John Hempton doesn't necessarily think this is a problem. After speaking to many Herbalife distributors, many seem to be signed up only to get the discount, he writes. While they don't intend on making sales, they are ardent consumers of the product. The solution for the FTC, he says, is just to go to as many Herbalife distributors as possible and ask whether, why, and how the distributors are consuming the product. -- Shane Ferro On to today's links: Charts
The economy is not doomed - Brad DeLong
There's an economic component to smoking rates in the US - NYT Behind the Music
To understand the pop music industry, you must understand Sweden - Whet Moser Predictions
Brain damage, digital competition, and oversaturation: Mark Cuban on why the NFL will implode in a decade - Mark Cuban IPOs
Why Box is going public: it needs the money - TechCrunch Ugh
The long-term unemployed aren't lazy, they're unlucky - Catherine Rampell Gloomy
How widespread corruption is hobbling Cambodia's economy - Adam Pasick Easing Ain't Easy
Fed governor Jeremy Stein's tenuous theory driving the taper - Ryan Avent Oxpeckers
"If your readers are losing IQ points reading your stuff, you are doing something wrong" - Ryan Chittum Investigations
ProPublica finds doctors taking research money and consulting fees from the same companies - Charles Ornstein and Ryann Grochowski Jones
The NLRB is cracking down on companies illegally classifying employees at temps - Harold Meyerson Legitimately Good News
Solar energy is as cheap as conventional sources in Germany, Italy, and Spain - CleanTechnica | 
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