Herbalife Ltd, the company that hedge fund manager Bill Ackman has accused of being a pyramid scheme, is being probed by the US FBI, according to a person familiar with the matter.
US authorities are looking into the company’s marketing practices, said the person, who asked not to be identified because the investigation is private.
The Financial Times reported the probe on Friday, saying the FBI and the US Attorney’s Office in Manhattan were involved.
Herbalife, which said on Friday it had no knowledge of an FBI or US Department of Justice probe, has spent more than a year denying Ackman’s accusations that it misleads distributors, misrepresents sales and sells a commodity product at inflated prices.
In that time, the company has won allies such as billionaire Carl Icahn, who has become its largest shareholder.
“Not every probe leads to an indictment,” Meredith Adler, an analyst for Barclays PLC in New York, said in an interview. Adler, who recommends buying the shares, said she will wait for more details before forming an opinion.
Shares of Cayman Islands-based Herbalife dropped 14 percent to US$51.48 on Friday in New York trading. That’s the biggest one-day decline since Dec. 21, 2012, the day after Ackman laid out his arguments against the company in a presentation that stretched longer than three hours.
Representatives of Icahn and Ackman did not immediately respond to requests for comment. Jim Margolin, a spokesman for Manhattan US Attorney Preet Bharara, declined to comment.
Herbalife, which sells vitamins and meal-replacement shakes through a network of independent distributors, said on Friday in a statement that it has not received requests for information from the FBI or the Justice Department.
“Herbalife does not intend to make any additional comments regarding this matter unless and until there are material developments,” the company said.
The company disclosed last month that the US Federal Trade Commission had started a civil probe into its practices, which Ackman had sought since his New York-based firm, Pershing Square Capital Management LP, bet US$1 billion against Herbalife’s shares.
The trade commission had been asked by US Senator Edward Markey, a Massachusetts Democrat, to look into Herbalife’s business practices, and an advocacy group called the League of United Latin American Citizens also had met with agency Chairwoman Edith Ramirez to describe alleged abuses by the company.
The New York Times has reported that Ackman donated US$10,000 to the advocacy group and hired a former Markey aide as part of his anti-Herbalife campaign.
Defending Herbalife has been Icahn, who last year disclosed his stake in the nutrition company and said he would discuss strategic alternatives with its management, which works from an office in Los Angeles. Icahn has since increased his stake to 17 percent, according to data compiled by Bloomberg. Herbalife said last month that it would nominate three board members picked by Icahn.