Herbalife (NYSE: HLF) has been hit by a short seller again. Earlier this year it was David Einhorn simply asking questions about the business. This time it is Bill Ackman calling Herbalife a pyramid scheme and laying out his case.

Pyramid scheme allegations are nothing new. Each time, Herbalife vehemently denies it is a pyramid scheme, and says it’s a legitimate company, with legitimate products, and a legitimate business opportunity. It is this “business opportunity” that merits the pyramid scheme allegations.

Herb Greenberg of CNBC has been researching Herbalife for a long time. Back in May, Greeberg pointed out the reasons he thinks investors should worry about Herbalife:

Recently Bruce Craig, a retired lawyer from the Wisconsin Department of Justice in the area of consumer protection, published an interesting article on multilevel marketing: An Investor’s Guide To Identifying Pyramid Schemes. The controversy surrounding Herbalife (NYSE: HLF), and initiated simply because David Einhorn asked a few questions about the company, was the impetus for Bruce’s comments.

I believe that most mulit-level marketing companies (MLM, for short) are pyramid schemes that are allowed to operate in the United States. They are very careful in their efforts to avoid the label of “illegal pyramid scheme,” but that doesn’t mean they’re not pyramid scheme in substance.

Sam Antar, former CFO of Crazy Eddie (massive fraud in the 1980′s) has been systematically uncovering fraud at Green Mountain Coffee Roasters (NASDAQ: GMCR) for years. In spite of this, investors continue to run up the price of the stock, believing the hype and the numbers put out by management.

Yesterday, Sam exposed even more about the potential fraud, targeting suspected inventory manipulation that could fraudulently inflate GCMR’s earnings. The overstatement of inventory improperly inflates earnings, and Sam surmises that Green Mountain may be doing exactly that.

Questions posed to Herbalife earlier this year by David Einhorn sent the stock price down quickly. Einhorn simply wanted to know about customers… actual consumers of the Herbalife products.

One has to assume Einhorn has done lots of research on multi-level marketing. And he knows the real deal. Herbalife’s customers are the distributors. Corporate doesn’t care much if the products get to a real customer after that. They’ve already made their sale and collected their money.

Multi-level marketing has very little to do with selling the product, and relies almost exclusively on continual recruitment of new distributors. But the product is important to make the MLMs not look like pure pyramid schemes.

In March, the Federal Trade Commission entered an order against multi-level marketing company BurnLounge, prohibiting the company and its founders from making certain misrepresentation and requiring them to disclose certain things in the future. Over the last few months, the heat has been on Herbalife, after short seller David Einhorn asked some important questions on a conference call. (Don’t let HLF tell you the questions were elementary or not important. They are very important.)

There is no doubt that Herbalife has had much financial success over the years. It is the largest publicly traded MLM, and its stock price has increased greatly since 2007. But are there things to be worried about? If you know something about multilevel marketing, the answer is YES.

Two weeks ago the big news was Herbalife’s earnings call, and questions asked by David Einhorn. Stephen Gandel, senior editor at Fortune Magazine wrote a great article on the Herbalife questions and their significance. I was quoted relative to the issues of distributors and recruiting:

It’s not clear Einhorn has already placed his bets against Herbalife, but it seems likely he would do so before tipping his hand, even slightly. Einhorn only asked three questions on the conference call, so it’s not clear why he thinks the company’s shares will fall. But Tracy Coenen, a forensic accountant, who has been following Herbalife for a few years, says that from Einhorn’s questions it appears he is concerned about Herbalife’s growth.

Yesterday the stock of Herbalife (NYSE:HLF) dropped 20 percent when David Einhorn of Greenlight Capital began asking questions during the company’s earnings call. Herbalife is a multi-level marketing company which sells vitamins. The company describes itself:

We pursue our mission of “changing people’s lives” by providing a financially rewarding business opportunity to distributors and quality products to distributors and customers who seek a healthy lifestyle. We are one of the largest network marketing companies in the world with net sales of approximately $3.5 billion for the fiscal year ended December 31, 2011. As of December 31, 2011, we sold our products in 79 countries through a network of approximately 2.7 million independent distributors.

A couple of weeks ago, David Einhorn bashed Green Mountain Coffee Roasters (NASDAQ:GMCR) in a 110-slide presentation called “GAAP-uccino” at the Value Investing Conference, sending the company’s shares down. The stock opened at $91.66, and closed at $82.50 the day of his presentation. Over the next two weeks, the stock closed as low as $61.59, with the stock ending last week at $70.99.

The stock had been hovering between $100 and $110 a share in September, despite warnings by others that Green Mountain has been manipulating numbers and could become the target of a full-blown investigation by the Securities and Exchange Commission.  Sam Antar, the former CFO of massive fraud Crazy Eddie, has been critical about Green Mountain for some time. He has been vocal about the company’s disclosures, accounting irregularities, and GAAP violations.