November 14, 2014

In case you missed it last night, it was revealed by Reuters that Herbalife director Pedro Cardoso has been wanted for a $10M embezzlement fraud in Brazil since 2008.

Cardoso, who apparently lives in Brazil, has said in a statement to CNBC that he had no idea he was being sought in connection to the case.

This Portugese story (worth translating using Google) profiles the Brazilian mob boss who Cardoso is tied to. He appears to be one of the most powerful men in all of Brazil, which leads me to ask why Cardoso is included in 12 people that are sought in this case? While I have no doubt Cardoso and Herbalife will try and distance themselves from this, I’m positive there’s still stones that need to be turned over here.

According to Scott Wapner at CNBC, the company is denying that they knew anything about this. Herbalife also told Scott Wapner that they just found out about the news two days ago, which begs the question: why did Reuters have to break the news? Did the company have any plans on disclosing this?

One of these three scenarios has to be true:

1. Cardoso had no idea (unlikely). If true, it’s official – now he knows. Resign from the board and turn yourself in.

2. Cardoso knew and didn’t tell Herbalife (likely). If true – now Herbalife knows. It looks like Leroy Barnes announced his retirement at the perfect time. Other board members and executives would feel betrayed if this is the case. I suggest they all think long and hard about distancing themselves from Herbalife before the next shoe drops, whatever it is.

3. Cardoso and Herbalife both knew (unlikely). If true – and shareholders weren’t made aware of this litigation while voting on Cardoso, it’s securities fraud.

Nothing would surprise me at this point.

It also happens to be an interesting coincidence that Jose Gratz, the EXTREMELY powerful man that Cardoso is tied to, has ties not only to murdering judges and witnesses – but to money laundering. Could Herbalife be the perfect vehicle for money laundering in and out of Brazil?

Many more questions need to be answered.

I expect that Mr. Cardoso will resign or be removed from his position today, which would make the second Board member in 2 weeks to hit the road. Expect a company statement this morning.