Herbalife (NYSE:HLF) investors and analysts erupted in delight this week as the company's new auditor, PricewaterhouseCoopers, found no discrepancies during its re-audit. The re-audit covered more than three years of financial history for the company, and PWC found nothing materially wrong. The stock soared to a new high on the news and, for some, put to rest Pershing Square's year-long attack on the company. For Bill Ackman (Pershing's chief), though, the battle isn't over. The renowned activist investor has more than $1 billion riding against the stock and has lost millions upon millions over the past year as Herbalife's stock has moved straight up. Is this thing over yet?

Prove it
Aside from the company's evangelists and cult-like following, most people seem to be aware that Herbalife engages in some form of predatory practice -- just as rent-to-own businesses and check advance companies often do. Herbalife appeals to a demographic that is lower on the socioeconomic ladder and in need of a solution to financial stress.

The thing is, our country's laws provide for this kind of business -- or at least they don't outright prevent it. That's where Ackman may ultimately fail in his quest to bring down the health supplement and multi-level marketing giant.

For all of its moral murkiness, Herbalife is really great at what it does. More importantly, the company apparently has gone to great lengths to ensure that all other areas beyond its business model are as pristine as possible. PWC's audit of all of these financial statements shows that there were no accounting irregularities. Even though the stock reached new heights, this shouldn't have come as a surprise. Part of Ackman's complaint involved the way the company accounts for its salesforce, but again, it wasn't something that would come into direct conflict with existing governance over the matter.

What now?
The investor has not lost an iota of dedication to his fund's massive short against the company. To go back on that now would erode his credibility, which has already been under fire because of the botched J.C. Penney turnaround that Ackman curated.

On Monday, Pershing Square issued a statement saying that PricewaterhouseCoopers was not sent over to the company to determine whether it is a pyramid scheme. This is a very true point.

Pershing Square's fight does not lie in the hands of those hunting for errors in Herbalife's books, but with regulators. The fund is riding on the growing strength of the FTC and the Consumer Bureau for Financial Protection, an agency dedicated to closing the loopholes that allow predatory businesses to continue their misleading ways. Ackman has to hope that regulators can prove Herbalife makes more money from its distributors recruiting others than it does from the sale of products to non-distributors.

As Herbalife has made clear thus far, that is a difficult one to prove.


Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool has long January 2015 $50 calls on Herbalife. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.