Hedge fund manager alleges Herbalife is 'pyramid scheme'

Herbalife Ltd. is girding for a fight against a Wall Street money man who's betting $1 billion that the company is nothing more than what he called a "pyramid scheme."

The Los Angeles maker of nutritional products rushed to defend itself Thursday against a hedge fund manager's accusation.

Hedge fund titan Bill Ackman accused Herbalife of paying its sales staff far more money to recruit new distributors than to actually sell its products.

That results in the roughly 2.6 million distributors at the bottom of the sales pyramid making little or no income, while a handful at the top hauls in millions, he said.

"This is the best-managed pyramid scheme in the history of the world," Ackman said.

The company denied the allegation and accused Ackman of trying to manipulate the stock. Herbalife shares slumped 10% on Thursday and are off 21% in the two days since Ackman announced that the company is in his sights.

"Today's presentation was a malicious attack on our business model based largely on outdated, distorted and inaccurate information," Herbalife said in a statement. "We are not an illegal pyramid scheme."

Herbalife, which bills itself as a so-called multilevel marketer, has beaten back similar accusations in the past. But the company has rarely faced a nemesis such as Ackman.

The 46-year-old billionaire has fashioned a career on high-stakes gambits in controversial companies. His fund firm, Pershing Square Capital Management, manages $12 billion.

Showdowns between companies and skeptical investors historically play out behind closed doors, especially in the normally sleepy pre-holiday period.

But in a measure of the aggressive tactics favored by an emerging breed of activist investors, Ackman launched a public blitzkrieg Thursday. He gave a flashy multimedia presentation to a packed conference room in New York that was streamed live on the Internet.

"I've never seen anything quite like it," said Timothy Ramey, an analyst at D.A. Davidson & Co. "I've never seen an investor spend 31/2 hours of time at a major venue being webcast and then make TV appearances to make his point. It's the largest orchestrated bull or bear case that I've ever seen."

The brawl has potential repercussions for both sides.

Ackman claimed to have spent one year doing intensive research on Herbalife's operations, an unusually extended period given Wall Street's thirst for immediate results.

Earlier this year, Ackman began betting that Herbalife's stock would fall sharply.

His fund is "shorting" more than 20 million shares of the company. In a short sale, an investor borrows stock and sells it immediately, hoping to later buy the shares at a reduced price and return them to their actual owner.

Ackman promised to donate all profit from his Herbalife bet to charity, and portrayed his public diatribe as intended for the public good.

"I'm very fortunate to have the means to pursue this," he said. "I am independently wealthy. When I believe in something, I can say what I want and do what is right."

For Herbalife, the fight threatens to damage its credibility among investors who have always been sensitive to claims that its business is illegitimate.

Herbalife, which was founded in 1980, sells a line of diet powders, bars, drinks and vitamins through a network of independent distributors in more than 80 countries. The company reported sales of $3.5 billion in 2011.

Its chief executive, Michael O. Johnson, was the highest paid executive in the United States last year, hauling in more than $89 million in salary, exercised stock options and other compensation, according to GMI Ratings, a corporate governance firm.

The company has fought criticism of its business model throughout its existence.

In 2008, for example, self-proclaimed fraud buster Barry Minkow shorted Herbalife's stock and then accused the company of a host of misdeeds. The company survived those accusations and Minkow ultimately went to prison on unrelated charges.

This was the second time this year that investors punished Herbalife because of questions about its business practices. Herbalife shares fell 20% in May after hedge fund operator David Einhorn asked pointed questions during an earnings call.

"We operate at the highest ethical and quality standards, and our management and our board are constantly reviewing our business practices and products," Herbalife said. "We also hire independent, outside experts to ensure our operations are in full compliance with laws and regulations."

Ackman and Herbalife engaged in a bitter and bizarre war of words, with Johnson saying the United States will "be better when Bill Ackman is gone."

Ackman interpreted the statement as a threat and said he has hired a security firm to protect him.

stuart.pfeifer@latimes.com

walter.hamilton@latimes.com

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Fearful 'end of world' calls, emails flood NASA as Dec. 21 nears

If there's one government agency really looking forward to Dec. 22, it's NASA.

The space agency said it has been flooded with calls and emails from people asking about the purported end of the world — which, as the doomsday myth goes, is apparently set to take place Friday, Dec. 21.

The myth might have originated with the Maya calendar, but in the age of the Internet and social media, it proliferated online, raising questions and concerns among hundreds of people around the world who have turned to NASA for answers.

Dwayne Brown, an agency spokesman, said NASA typically receives about 90 calls or emails per week containing questions from people. In recent weeks, he said, that number has skyrocketed — from 200 to 300 people are contacting NASA per day to ask about the end of the world.

"Who's the first agency you would call?" he said. "You're going to call NASA."

The questions range from myth (Will a rogue planet crash into Earth? Is the sun going to explode? Will there be three days of darkness?) to the macabre (Brown said some people have "embraced it so much" they want to hurt themselves). So, he said, NASA decided to do "everything in our power" to set the facts straight.

That effort included interviews with scientists posted online and a Web page that Brown said has drawn more than 4.6 million views.

It also involved a video titled "Why the World Didn't End Yesterday." Though the title of the video implies a Dec. 22 release date, Brown said NASA posted the four-minute clip last week to help spread its message.

The website addresses several scenarios — the possibility of planetary alignments, total blackouts, polar shifts and "a planet or brown dwarf called Nibiru or Planet X or Eris that is approaching the Earth and threatening our planet with widespread destruction" — but comes to the same conclusion.

In short, NASA says, "the world will not end in 2012."

"Our planet has been getting along just fine for more than 4 billion years, and credible scientists worldwide know of no threat associated with 2012," the website says.

The Griffith Observatory will also be trying to debunk doomsday predictions. It announced plans to stay open late Friday evening — until one minute past midnight — to "demonstrate that claims regarding the Maya calendar, planetary alignments, rogue planets, galactic beams, and other related phenomena have no basis in fact."

A few years ago, NASA suspected that it might have to create such a campaign when the idea of the world ending began "festering," Brown said. The apocalyptic action movie "2012," released in 2009, didn't help, he said.

"We kind of look ahead — we're a look-ahead agency — and we said, 'You know what? People are going to probably want to come to us' " for answers, Brown explained. "We're doing all that we can do to let the world know that as far as NASA and science goes, Dec. 21 will be another day."

As for Saturday, when the questions — not the world — end: "I wish it was tomorrow."

kate.mather@latimes.com

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Google to sell part of Motorola for $2.35 billion

SAN FRANCISCO (AP) — Google is selling Motorola Mobility‘s TV set-top business for $ 2.35 billion, lightening the load that the Internet search leader took on earlier this year when it completed the biggest acquisition in its history.

The cash-and-stock deal announced late Wednesday will turn over Motorola‘s set-top division to Arris Group Inc., a relatively small provider of high-speed Internet equipment that is looking to become a bigger player in the delivery of video. Investors applauded the move, driving up Arris‘ stock by nearly 17 percent.

Google‘s decision to jettison the set-top boxes comes seven months after the Mountain View, Calif., company took control of Motorola Mobility Holdings in a $ 12.4 billion purchase.

The set-top boxes were never a big allure for Google, although the company is interested in finding ways to pipe its service on to TVs so it can sell more advertising.

Google prized Motorola for its portfolio of more than 17,000 mobile patents. Those form an arsenal that it can use in a fierce battle that has broken out over intellectual property as smartphones and tablet computers have emerged as hot commodities in recent years.

Motorola also makes smartphones and tablets, a manufacturing business that Google will retain, despite lingering concerns on Wall Street about the hardware shrinking Google‘s profit margins and possibly alienating other device makers that use the company’s Android software.

Besides not being a natural fit for Google, Motorola‘s set-top box also has become a potentially expensive liability. Digital video recorder pioneer TiVo Inc. is seeking billions of dollars in damages in a lawsuit alleging that Motorola‘s boxes infringed on its patents. Those claims are scheduled to go to trial next year in federal court in Texas.

Although they declined to provide specifics, Arris Group executives told analysts in a Wednesday conference call that Google still must cover most of the bill for any damages or settlement that TiVo might win.

TiVo already has negotiated about $ 1 billion in combined settlements in other patent-infringement cases it has brought against other companies, including Dish Network Corp., AT&T Inc. and Verizon Communications.

The proposed sale of Motorola‘s set-top division calls for Google to receive $ 2.05 billion in cash and $ 300 million worth of Arris stock. If the deal wins regulatory approval, Arris Group expects to take over the division before the end of June.

Google will also pare its expenses, something likely to please investors concerned about Motorola being a drag on the company’s earnings. Arris said about 7,000 people work in Motorola‘s set-top division. Google ended September with about 53,500 employees, including 17,400 who worked on the Motorola side of its operations. More than 20,000 people worked at Motorola Mobility when Google became the owner in late May, but the payroll was slashed as part of an effort to pare the losses that have been piling up within Motorola as its once popular cellphones lost market share to Apple Inc. and Samsung Electronics.

But Motorola‘s set-top business had been making money, according to Google, though the company didn’t say how much.

In the past year ending in September, Motorola‘s set-top operations generated $ 3.4 billion in revenue. That makes it twice as big as Arris Group, whose revenue totaled $ 1.3 billion during the same period. Arris Group, which is based Suwanee, Ga., had earned $ 39 million through the nine months of last year after suffering a loss of nearly $ 13 million for all of 2011.

“This represents a great leap forward for Arris,” CEO Bob Stanzione said during Wednesday’s conference call.

Arris’ stock surged $ 2.46 to $ 17 in extended trading Wednesday while Google‘s stock dipped $ 2.61 to $ 717.50.

The other half of the old Motorola Inc., Motorola Solutions Inc., remains an independent company. Based in Schaumburg, Ill., it sells communications equipment to government and corporate customers.

Wireless News Headlines – Yahoo! News

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Miss USA Olivia Culpo is crowned Miss Universe

LAS VEGAS (AP) — A 20-year-old Boston University sophomore and a self-described "cellist-nerd" brought the Miss Universe crown back to the United States for the first time in more than a decade when she won the televised contest Wednesday.

Olivia Culpo beat out 88 other beauty queens from six continents at the Planet Hollywood casino on the Las Vegas Strip to take the title from outgoing champion Leila Lopes of Angola.

Culpo wore a tight navy blue mini-dress with a sequined bodice as she walked on stage for the competition's opening number. Later in the night, she strutted in a purple and blue bikini, and donned a wintery red velvet gown with a plunging neckline.

Culpo's coronation ends a long losing spell for the U.S. in the competition co-owned by Donald Trump and NBC. An American had not won the Miss Universe title since Brook Lee won in 1997.

No one seemed more surprised than Culpo's family, who "looked at her like she had three heads" when told them she was entering the Miss Rhode Island contest last year, her father Peter recalled.

"We didn't know a thing about pageants," he said.

She won that contest in a rented $20 dress with a hole in it and then began working out, dieting, and studying current events on flashcards to compete for the Miss USA crown.

Culpo was good enough during preliminary Miss Universe contests to be chosen as one of 16 semifinalists who moved on to compete in the main show. Her bid lasted through swimsuit, evening wear, and interview competitions that saw cuts after each round.

She won over the judges even after tripping slightly during the evening gown competition. Telecasters pointed it out but also noted her poised recovery.

Moments before she won, Culpo was asked whether she had she had ever done something she regretted.

"I'd like to start off by saying that every experience no matter what it is, good or bad, you'll learn from it. That's just life," she said. "But something I've done I've regretted is probably picking on my siblings growing up, because you appreciate them so much more as you grow older."

One of those siblings, 17-year-old Gus, was cheering from the front row with his sister's glittering Miss Rhode Island sash wrapped around his shoulders

Miss Philippines, Janine Tugonon, came in second, while Miss Venezuela, Irene Sofia Esser Quintero, placed third. All the contestants spent the past two weeks in Sin City, where they posed in hardhats at a hotel groundbreaking, took a painting lesson, and pranked hotel guests by hiding in their rooms.

After the show, Culpo appeared wearing a white gold crown atop her long brown hair and told a group of reporters she hoped to bring the country some good news in the wake of the deadly school shooting in Connecticut.

"It's such an honor to be representing the USA in an international beauty contest in spite of all the tragedy that's happened in this country lately," she said. "I really hope that this this will raise everybody's spirits a little."

The daughter of two professional musicians, Culpo grew up in Cranston and spent her summers at band camp. She has played the cello alongside world-renowned classical musician Yo-Yo Ma, and followed in her parents' footsteps with performances at Carnegie Hall in New York City.

Her father called her the "nerdiest" of her siblings, and her brother recalled that she was "really chubby and sort of weird when she was younger."

They speculated that the same single-mindedness that helped her master the cello in second grade propelled her rapid rise through the beauty pageant ranks.

With her promotion, Miss Maryland Nana Meriwether becomes the new Miss USA.

The Miss Universe pageant was back in Las Vegas this year after being held in Sao Paulo in 2011. It aired live on NBC and was streamed to more than 100 countries.

The panel of 10 judges included singer Cee Lo Green, "Iron Chef" star Masaharu Morimoto and Pablo Sandoval of the San Francisco Giants.

Asked on the red carpet whether he found playing in the World Series or judging the beauty pageant to be more difficult, Sandoval said both were hard.

As Miss Universe, Culpo will receive an undisclosed salary, a wardrobe fit for a queen, a limitless supply of beauty products, and a luxury apartment in New York City.

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Recipes for Health: Spiced Roasted Almonds

Andrew Scrivani for The New York Times

Spiced roasted almonds.

Roasted nuts are standard snacks, and almonds are a healthy food. But it is easy to eat too many. I find that if they are a little spicy or hot, delicious as they are, they are not quite as addictive.

 

3 cups (about 400 grams) almonds

2 teaspoons extra virgin olive oil

Salt to taste

1/4 to 1/2 teaspoon cayenne, or to taste

1 to 2 teaspoons finely chopped fresh thyme or 1/2 to 1 teaspoon crumbled dried thyme (optional)

 

1. Preheat the oven to 350 degrees. Toss the almonds with olive oil, salt and cayenne, and place on a baking sheet. Roast in the hot oven until they begin to crackle and smell toasty, 15 to 20 minutes. Be careful when you open the oven door because the capsicum in the cayenne is quite volatile, so avoid breathing in, and be careful of your eyes. Remove from the heat and allow to cool. Toss with the thyme.

Yield: 3 cups (about 20 handfuls)

Advance preparation: Keep these in an air tight container in the freezer and they will be good for a couple of weeks.

Nutritional information per 20 grams (about 18 almonds): 119 calories; 10 grams fat; 1 gram saturated fat; 2 grams polyunsaturated fat; 7 grams monounsaturated fat; 0 milligrams cholesterol; 4 grams carbohydrates; 2 grams dietary fiber; 0 milligrams sodium (does not include salt to taste); 4 grams protein

 

​Up Next: Marinated Olives

 

Martha Rose Shulman is the author of “The Very Best of Recipes for Health.”

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UBS to pay $1.5 billion to settle Libor charges

UBS has agreed to pay a fine of $1.5 billion to authorities and plead guilty to a felony count of wire fraud, the most recent developments in a far-reaching probe into how banks manipulated interest rates leading up to the financial crisis.

Two former traders were also charged with conspiracy in a complaint unsealed Wednesday, the first people charged criminally in the Libor scandal.

"We cannot and we will not tolerate misconduct on Wall Street of the kind admitted to by UBS today and by Barclays last June," said Assistant Atty. Gen. Lanny Breuer, head of the criminal division. In June, Barclays was the first bank to settle with authorities, paying $450 million.

The fine was one of the biggest leveled against a financial institution by American and British authorities, just short of the $1.9-billion fine HSBC agreed to pay last week over money laundering allegations.

The charges relate to the ways traders leaned on banks to manipulate the London interbank offered rate, or Libor, to benefit their own trading positions.

Officials said that from 2006 through 2009 UBS traders placed bets on the movement of Libor and manipulated the rate, which is used as a benchmark to set interest rates for many mortgages, credit cards and other consumer lending instruments. The traders profited by knowing which way the Libor would move.

In coming months, the probe probably will expand to include other banks that help determine the Libor, analysts say. But it's the criminal charges that turned some heads on Wall Street on Wednesday.

The plea agreement on wire fraud charges by a UBS subsidiary in Japan, which included a $100-million fine, marks the first time since 2005 that a major financial institution has pleaded guilty to criminal charges, the Justice Department said.

"For a bank to admit to criminality is kind of mind-blowing," said Peter Shapiro, managing director of Swap Financial Group in South Orange, N.J. "Obviously, they didn't do that easily — that was something that must have been a big priority of enforcement agencies."

Enforcement agencies have been feeling some pressure to level blame on financial institutions in the wake of the financial crisis, Shapiro said. No senior financial executives have served jail time for their roles in the financial crisis.

"Both the regulators and enforcement agencies feel somewhat beleaguered by the repeated assertions that they failed to deliver enough heads on a plate as a response to the financial crisis," he said.

U.S. officials also announced criminal charges against two former senior traders for UBS in connection with the scandal. Tom Alexander William Hayes, 33, of Britain, was charged with conspiracy and wire fraud, and Roger Darin, 41, of Switzerland, was charged with conspiracy. Both remain abroad, but the Justice Department will try to extradite them.

"The motivation here was nothing short of sheer greed, and the scheme was nothing short of a shell game, a Wall Street version of three-card monte," said Kevin Perkins, associate director of the FBI, which helped investigate the case.

More criminal charges at other banks could follow, said Anthony Sabino, professor of law at the Tobin College of Business at St. John's University.

"Once you start to round up some accused bad guys, that leads to more people being rounded up," he said. "This is a vast conspiracy among a multitude of banks, which therefore implicates a multitude of individuals."

Much of the activity took place at UBS Japan Securities Co., where Hayes was a senior trader. The Justice Department released internal UBS messages in which Hayes and others talked about their alleged manipulation.

In one from November 2006, Hayes told a UBS employee who submitted rate information for the Libor that he and Darin "skew the Libors a bit" and then said he needed the six-month rate to stay high for three days.

UBS traders were often colorful and emphatic in their pleadings, according to documents released by Britain's Financial Services Authority. One wrote, "I need you to keep it as low as possible.... If you do that, I'll pay you, you know, $50,000, $100,000, whatever you want."

The UBS fine was larger than that leveled on Barclays earlier in the year because UBS' misconduct was "considerably more serious than Barclays' because it was more widespread within the firm," the Financial Services Authority said. At least 45 individuals at UBS were involved in or aware of the rate-fixing practice.

UBS said that it had fully cooperated with authorities and that the interest-rate manipulations were the isolated actions of certain employees.

"Their misconduct does not reflect the values of UBS nor the high ethical standards to which we hold every employee," UBS CEO Sergio Ermotti said in a statement.

Analysts say that there's still potential for significant civil suits against UBS and other banks, which could be more damaging than the fines levied against them. Keefe, Bruyette & Woods, an equity research firm, estimated in July that potential industry damages could reach $35 billion.

Those estimates were validated Wednesday when the Inspector General for the Federal Housing Finance Agency estimated that government-owned Fannie Mae and Freddie Mac may have lost a combined $3 billion because of reduced interest payments on securities and other holdings. Officials at FHFA, which regulates Fannie and Freddie, have not confirmed the estimate but are evaluating potential issues involved with the Libor manipulation.

There are barriers to further lawsuits — the burden of proof will be high, analysts at Keefe, Bruyette & Woods said. To move forward with civil suits, plaintiffs would have to prove that traders were conspiring, said John C. Coffee, a Columbia Law School expert in corporate fraud.

"But that said, the size of the potential liability is mushrooming," he said.

Times reporter E. Scott Reckard contributed to this report. Semuels reported from Los Angeles and Puzzanghera from Washington.

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Sony confirms 10 devices will get Jelly Bean upgrade starting in February 2013

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Cassadee Pope wins Season 3 of 'The Voice'

NEW YORK (AP) — Cassadee Pope, who was country singer Blake Shelton's protege on the third season of NBC's "The Voice," has won the show's competition.

The 23-year-old singer is stepping out into a solo career after performing with a band called Hey Monday. Her victory over Scottish native Terry McDermott and long-bearded Nicholas David was announced at the end of a two-hour show Tuesday.

"The Voice" has grown into a hit for NBC and was the key factor in the network's surprising success this fall.

The show's status was affirmed by the stream of hitmakers who performed on the finale. They included Rihanna, Bruno Mars, the Killers, Smokey Robinson and Peter Frampton.

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Church Officials Call on Filipinos to Campaign Against Birth Control Law

MANILA — After losing a battle to stop the passage of a contentious birth control law, Roman Catholic Church officials on Tuesday dug in and instructed their millions of followers to campaign against the measure in communities, schools and homes.

“Let us intensify the moral spiritual education of our youth and children so that they can stand strong against the threats to their moral fiber,” Archbishop Socrates Villegas said in a statement. “Let us use all the means within our reach to safeguard the health of expectant mothers in our communities.”

The Philippine Congress passed legislation on Monday to help the country’s poorest women gain access to birth control. Each chamber of the national legislature passed its own version of the measure, and minor differences between the two must be reconciled before the measure goes to President Benigno S. Aquino III for his signature.

The measure had been stalled for more than a decade because of determined opposition from the church in this overwhelmingly Catholic country.

Birth control is legal and widely available in the Philippines for people who can afford it, particularly those living in cities. But condoms, birth control pills and other forms of contraception are sometimes kept out of community health centers and clinics by local government and Catholic Church officials.

The measure passed on Monday would stock government health centers, including those in remote areas, with free or subsidized birth control options for the poor. It would also require sex education in public schools and family-planning training for community health officers.

Archbishop Villegas, the vice president of the Catholic Bishops Conference of the Philippines, on Tuesday encouraged Catholics to resist the measure by disseminating information about natural family planning methods and warning people about “the hazardous effects of contraceptive pills on the health of women.”

“Let us conduct our own sex education of our children insuring that sex is always understood as a gift of God,” Archbishop Villegas stated. “Sex must never be taught separate from God and isolated from marriage.”

Bishop Gabriel V. Reyes, chairman of the conference’s Episcopal Commission on Family and Life, said after the vote Monday that “we need to explain to our fellow believers that they ought to refuse contraceptives even when they are being offered these.”

The Philippines has one of the highest birthrates in Asia, but backers of the legislation, including the Aquino administration, have said repeatedly that its purpose is not to limit population growth. Rather, they say, the bill is meant to offer poor families the same reproductive health options that wealthier people in the country enjoy.

Though lacking the numbers needed to defeat the legislation, lawmakers who opposed the measure sought to delay the vote. In one instance, an opposition senator proposed 35 amendments just before a vote was to take place.

Often the debate took bizarre turns, as when a congressman claimed that the birth control measure was a plot by the Philippine Communist Party to take over the government.

In another instance, a male senator requested removal of the phrase “satisfying sex” from a passage in the bill that referred to “safe and satisfying sex.” Several female senators opposed its removal, and the amendment was debated live on television while social media networks crackled with sarcastic commentary. “I am a Filipina,” Senator Miriam Santiago said in response to the amendment. “I am also a married woman, and I insist whoever is married to me should give me safe and satisfying sex, period.”

During a vote on the measure in the House of Representatives, the boxer and congressman Manny Pacquiao linked the birth control measure to his having been knocked unconscious on Dec. 8 by Juan Manuel Marquez during their W.B.O. world welterweight fight in Las Vegas.

“Some thought I was dead,” Mr. Pacquiao said in a speech explaining his vote against the measure. “What happened in Vegas strengthened my already firm belief in the sanctity of life.” He added: “Manny Pacquiao is pro-life. Manny Pacquiao votes no.”

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Instagram draws ire over new user rules

SAN FRANCISCO — When it comes to policy changes, Instagram could have used a filter of its own.

Its usually devoted users threatened to delete their accounts en masse Tuesday if the popular photo-sharing app did not roll back new terms of service that appeared to give the company ownership of their images. Instagram users — about 100 million now — snap the photos on their smartphones, apply digital filters to enhance the photos and then instantly share them with friends.

"Dear @Instagram, why did you think we'd just be OK with your new terms? They are NOT COOL. Signed, The Entire Internet," Jason Pollock, a Los Angeles filmmaker and social media consultant, wrote on Twitter.

Instagram founder Kevin Systrom tried to calm the uproar and reassure users in a blog post Tuesday afternoon.

"Instagram does not claim any ownership rights over your photos," he wrote. "We respect that your photos are your photos. Period."

Instagram's new terms of service announced Monday included a clause stating that Instagram had the right to turn images into advertisements without any approval from or compensation for users starting Jan. 16. — part of Facebook's drive to make money from the service it bought this year for $715 million in cash and stock.

That angered amateur and professional photographers alike — even Facebook Chief Executive Mark Zuckerberg's wedding photographer.

"Pro or not if a company wants to use your photos for advertising they need to TELL you and PAY you," Noah Kalina said on Twitter.

The effort to make money from Instagram users struck a nerve. According to the Pew Research Center's Internet & American Life Project, nearly half of Internet users post photos and videos online that they have created themselves.

Kurt Opsahl, a senior staff attorney with the Electronic Frontier Foundation, said Instagram quickly realized it had "overplayed its hand." But its mea culpa blog post still contains plenty of loopholes, he said.

"They say they don't have any plans to put your photos in an advertisement, but nevertheless that is the permission they were seeking," Opsahl said. "We will have to see what the language of the terms of service looks like after they revise it."

Jeff Lawrence, a 29-year-old DJ, graphic designer and photographer from Seattle, said he'll decide if he's dumping Instagram after he sees what the company plans to do in black and white.

"Thankfully we are all Internet savvy enough to know that people can say one thing and do another," said Lawrence, an avid Instagram user. "I am going to wait and see if Instagram takes this criticism to heart and changes the terms of service."

The backlash underscored the rising tensions between users of free social media services and the companies that are trying to profit from them. More users are asking for more control over how these companies handle their information.

Clayton Cubitt, 40, a photographer and filmmaker from Brooklyn, N.Y., quickly dubbed the new terms of service a "suicide note" from Instagram.

He urged his fellow Instagram users to revolt against the current policies at social media companies that he described as "you have a free place to post content and in exchange the company sucks the soul out of your life."

"They look at users as a herd to milk," Cubitt said.

His rants may have angered Zuckerberg, but Zuckerberg's sister Arielle Zuckerberg publicly "liked" Cubitt's Instagram snapshot of the most controversial part of Instagram's terms of service.

It's unclear if the Instagram backlash will cause lasting damage to the service.

Hacker collective Anonymous had urged its more than 780,000 Twitter followers to ditch Instagram with the hashtag #BoycottInstagram and posted screen shots from followers who had. The servers of Instaport.me, which helps users download their photos from Instagram, were overloaded Tuesday as Instagram users deleted their accounts and switched to other options such as Hipstamatic and Twitter's new photo service that has filters similar to Instagram. Yahoo said it has seen "strong interest" in its new Flickr app for iPhones.

Many Instagram users said they would give Instagram the benefit of the doubt — for now.

"I am going to rage about it, and get people to rage about it, until we change their policy," Pollock, 31, said in an interview. "There is just something so personal and beautiful about Instagram. Hopefully they don't completely ruin it."

jessica.guynn@latimes.com

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