Herbalife shares nosedive as firm faces US inquiry

PYRAMID SCHEME?:The firm faces accusations that it makes most of its money by recruiting new salespeople rather than on the products it sells


Fri, Mar 14, 2014 - Page 15

Herbalife Ltd is facing an inquiry from the US Federal Trade Commission (FTC), the nutrition and supplement company said on Wednesday as its shares initially plunged more than 16 percent following a brief halt in trading pending the announcement.

Herbalife said that it received the civil investigative demand from the FTC on Wednesday. The commission’s Web site says that these are used to investigate possible “unfair or deceptive acts or practices.”

A representative from the commission was not immediately available to elaborate.

The company, which has faced accusations of operating a pyramid scheme, said that it welcomes the inquiry given “tremendous amount of misinformation in the marketplace” about its business.

Herbalife says it believes it is in compliance with all laws and regulations and plans to cooperate fully.

The company, which is incorporated in the Cayman Islands and based in Los Angeles, uses a network of distributors to sell its nutritional supplements and weight-loss products around the world.

The FTC inquiry comes just a day after hedge fund manager William Ackman renewed his attacks on the company.

Ackman has bet against the company and said repeatedly that he believes it operates as a pyramid scheme, which is when a company makes most of its money by recruiting new salespeople rather than on the products that they sell.

The head of Pershing Square Capital Management resumed this effort on Tuesday, holding a public event to detail his firm’s claims of how its Herbalife is operating as a pyramid scheme in China, violating laws there.

Pershing declined to comment on Wednesday on the FTC investigation.

Herbalife has repeatedly denied the claims and rival investor Carl Icahn has disagreed as well, taking his fight against Ackman public and increasing his stake in the company.

Herbalife fell 7.37 percent to US$60.57 on Wednesday after dropping as low as US$54.59 earlier.