Los Angeles Business Journal

FTC Opens Herbalife Probe

By Deborah Crowe Wednesday, March 12, 2014

Shares of Herbalife fell more than 7 percent on Wednesday after the company disclosed that the U.S. Federal Trade Commission has opened an inquiry into its operations, which have been under attack by an activist hedge fund manager.

The downtown Los Angeles nutritional supplement company said it would cooperate fully with the FTC and is “confident that Herbalife is in compliance with all applicable laws and regulations.” The FTC confirmed the inquiry but declined to disclose details.

Pershing Square Capital Management’s Bill Ackman, who has had a $1 billion short bet on Herbalife since mid-2012, launched a campaign to bring down Herbalife in December of that year. Ackman says he considers its multilevel marketing sales model an illegal Ponzi scheme, in which the company and its top independent distributors make more money recruiting new distributors than selling products to outside customers.

Herbalife shares initially slumped, but have since more than recovered. Ackman in recent months has attempted to recruit regulators, public officials and consumer groups to investigate and criticize the company. On Tuesday he expanded his campaign overseas, accusing the company of violating direct sales laws In China, one of Herbalife’s fastest-growing markets.

Herbalife's shares, which earlier fell more than 16 percent after the FTC news, later recovered to close down $4.82, or 7.4 percent, to $60.57 on the New York Stock Exchange.