UPDATE 3-Herbalife defends its honor as Ackman presses case
* Company says distributor payments based on sales
* 31 percent of 2012 US orders sent to non-distributors
* Shares down 2.7 percent in afternoon trade (Adds analyst comment, company comment)
By Brad Dorfman
Jan 10 (Reuters) - Herbalife Ltd executives defended their business on Thursday as a "legitimate company" with customers outside the network of people who sign up to sell its nutrition products, stepping up the defense against pyramid scheme accusations by short seller Bill Ackman.
The hedge fund operator, who has placed a huge bet that Herbalife stock will fall, has argued that the company is an unsustainable scheme because distributors earn more than 10 times as much from recruitment as they do by selling company products.
Ackman's Pershing Square, which has spent months researching the company, has also promised to fire off more specifics. For his $11 billion fund, the $1 billion short position is a key holding.
Herbalife has quickly transformed from a somewhat obscure purveyor of weight-loss products into a battleground for the biggest names in the hedge fund industry. Third Point's Dan Loeb has taken the other side of Ackman's trade, calling his thesis "preposterous" and predicting a sharp rise in the stock.
Loeb reached out to Herbalife through a third party and met with Chief Executive Michael Johnson one time within the past few weeks, Herbalife President Des Walsh said in an interview. He did not provide details of the meeting. Continued...