“The Federal Trade Commission has opened a probe into Herbalife.
The stock, which had been halted, is now trading down 14%. Before the news came out, it was up 4.45%.
Herbalife confirmed that they received a Civil Investigative Demand from the FTC.
“Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace, and will cooperate fully with the FTC. We are confident that Herbalife is in compliance with all applicable laws and regulations. Herbalife is a financially strong and successful company, having created meaningful value for shareholders, significant opportunities for distributors and positively impacted the lives and health of its consumers for over 34 years,” the company said in a statement.
A spokesperson for the FTC would not comment on the matter. A spokesperson for Pershing Square Capital Management also declined to comment on the investigation.
Herbalife, a multi-level marketing firm that sells weight loss products and nutritional supplements, has been at the center of a major hedge fund battle.
Hedge fund manager Bill Ackman, who runs Pershing Square Capital Management, announced about 14 months ago that he is betting $1 billion that the stock will go to $0. Ackman’s thesis is that the company operates as a “pyramid scheme” that targets lower income individuals, particularly those from the Hispanic population.
Ackman believes that regulators, particularly the FTC, will be persuaded to shut the company down.
He was recently the subject of a critical page-one New York Times article about how he’s been coordinating lobbying efforts in Washington, D.C. to bring the company down.
Ackman commented on a conference call yesterday it wasn’t his “favorite” article, but he thinks it will be “helpful.” He thinks that regulators will have to pay attention now that it’s a mainstream news story.
Herbalife has publicly refuted Ackman’s allegations that they operate as a pyramid scheme….”
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