Investor Bill Ackman accuses America's best paid chief executive, Michael Johnson, of duping salespeople out of $3.8bn

America's best paid chief executive has been accused of duping some of the world's poorest people out of $3.8bn (£2.4bn) in "the best-managed pyramid scheme in the history of the world".

Michael Johnson has been accused of misleadingly implying that his Herbalife empire of self-employed salespeople could all become millionaires selling dieting supplements door-to-door.

Bill Ackman, a famous activist investor, launched an extraordinary attack on Johnson and said he had made it his "patriotic" duty to bring the company down.

Ackman claims that 1.9 million Herbalife salespeople from Arizona to Zambia have failed to make money since the company was founded 32 years ago. Each sales recruit would have paid about $2,000 for supplies and training, which Ackman said meant they had collectively lost $3.8bn. Last year Johnson earned $89m, according to financial researchers GMI Ratings.

In a three-and-half hour presentation entitled "how to be a millionaire" Ackman, founder and chief executive of hedge fund Pershing Square Capital Management, accused Herbalife of running a modern day "ponzi scheme".

Ackman said his hedge fund had built up an enormous short position in the company, which means he is betting its share price will fall.

"Our target price is zero," he said, "Because we think the business will fail."

Critics have accused Ackman of talking down the company in order to profit from its plummeting share price, which has dropped 30% since Ackman revealed he was short-selling the stock on Wednesday.

Ackman denied he was motivated by profit, and said he was standing up for millions of poor people who had been led to believe they could become millionaires by reselling Herbalife supplements.

"I don't want to make money off of this," he said in an interview with CNBC. "It's not a happy thing. You've had millions of low income people around the world who've got their hopes up that there's an opportunity to become millionaires ... and they've been duped.

"They entered Ghana – remember they are selling a weight loss product – they are in Ghana, [other] countries in Africa, Zambia. These are not countries where weight loss products and digestives are big products."

He promised to donate all the profits from shorting Herbalife, which appeared on David Beckham's shirt when he played for LA Galaxy, to charity. He said he was more committed to bringing down Herbalife "than any investment I have ever made, full stop".

"This is all-hands-on, and I have everyone in the entire organisation working on this project, including two of the top law firms in the country," he told Bloomberg. He said he would hand over his evidence, which he detailed in a 300-slide presentation in New York on Thursday, to regulators.

The presentation, which began with a slide asking: "Has anyone ever purchased a Herbalife product?", claimed the company makes most of its money not by selling products but by recruiting sales staff, who pay a sign-on fee.

Later in the presentation Ackman showed a Herbalife video featuring one of the company's distributors listing the rewards of the job and giving a guided tour of his house, in which he talked about driving around town in a Ferrari or Bentley.

"Episodes of 'MTV Cribs'?" Ackman asked, referring to the reality TV tours of celebrity mansions. There were titters from the audience. "No. These are Herbalife productions."

Herbalife's chief executive, Michael Johnson, called CNBC to defend his company and attack Ackman. "This is a ridiculous assertion by people who are trying to manipulate our stock," he said.

Johnson, who was America's best paid chief executive in 2011, said his lawyers "would go crazy" if he went into too much detail about why Ackman's analysis was "bogus". He added that he would ask the US Securities and Exchange Commission to investigate the hedge fund tycoon's motives.

Herbalife released a statement saying Ackman's presentation was a "malicious attack on our business model based largely on outdated, distorted and inaccurate information. We operate at the highest ethical and quality standards."

The company said its executives had been prevented from attending the presentation, and said if they had been allowed in they would have "been able to tear Mr Ackman's premises and interpretation of our business model apart".

It is not the first time Herbalife has been accused of running a pyramid scheme. Earlier this year, David Einhorn, another well-known hedge fund manager, asked pointed questions on a conference call that sent the shares down more than 20%.

In January, a Belgian court ruled that Herbalife had "established, managed or promoted a pyramid scheme". The company said it was appealing the decision. © Guardian News and Media 2012

[Image: by Василий Красюк on Wikimedia Commons, Creative Commons licensed]