Why Bill Ackman is targeting Herbalife Pyramid Scheme

It's an epic corporate showdown. Hedge fund manager and activist investor Bill Ackman versus vitamin and nutritional supplements company Herbalife

Ackman, who runs the $11 billion hedge fund Pershing Square, has called Herbalife a pyramid scheme and publicly said that he's betting $1 billion that its stock will fall to zero.

If Ackman is right, Herbalife, a company that reports roughly $4 billion in annual sales and a network of 3.2 million salespeople in 87 countries, could be shut down by the Federal Trade Commission. The Federal Trade Commission calls pyramid schemes illegal and says they prey on consumers. With more than $1 billion on the line, Ackman stands to make billions in profits too.

If he's wrong, Ackman will not only lose money. An erroneous short call could tarnish his credibility as an activist investor. He's already proven that he can force corporate boards -- including those at the railroad company Canadian Pacific (CP) and retailer J C Penney Company Inc (JCP, Fortune 500) -- to make the changes he seeks. But the FTC and other federal agencies may not be as willing to listen.

<WATCH VIDEO>: http://money.cnn.com/2013/01/08/investing/herbalife-ackman/index.html?hpt=hp_t2