Everyone likes a good tale of redemption. And that’s been Herbalife Ltd.’s inspirational story in recent years. The company used to have a sort-of-shady status but now is wholesome, reputable, sunny. Kind of the reverse of Miley Cyrus.

But last week investors started wondering if this is still an outstanding company or if it has standing problems.

Here’s a quick history: Herbalife got started in 1980 by a charismatic 24-year-old from Camarillo named Mark Hughes. He held revival-style meetings in which he got distributors enthused about hawking the company’s weight-loss shakes. Actually, the distributors may have been less excited about the product than about making big money thanks to the company’s multilevel marketing scheme. The more people they enlisted to sell for them, the more money the distributors made.

Hughes died in 2000 at age 44 after binging on alcohol and a prescription antidepressant, not exactly a testament to healthy living. Around the time of Hughes’ death, the company was hit with various accusations that its multilevel marketing arrangement was a pyramid scheme.

To its credit, the company took command of its problems and began its comeback, its redemption. It agreed to several reforms, and in 2003 it brought in Michael Johnson, the former president of Walt Disney International, to the helm. Johnson, athletically fit, had a clean reputation and experience in international sales – important for the company’s growth.

Johnson updated and improved the company’s product line, introducing items for fitness and endurance and for children. The company became a big sponsor of various sporting events and teams, including the Los Angeles Galaxy. Soccer’s biggest star, David Beckham, wears the team’s jersey with Herbalife’s name across the front.

And Herbalife, headquartered in downtown Los Angeles, has become a corporate success. It came in No. 1 on the Business Journal’s list of most profitable public companies in Los Angeles County in 2010 and again in 2011. It became L.A.’s 10th biggest public company early this year.

But through it all, Herbalife kept its multilevel marketing arrangement. Defenders argue that MLM, as it’s known, is a great way for any company to inexpensively and rapidly expand in new markets – a hallmark of Herbalife’s success. MLM just has to be done correctly. But critics argue if not done right, MLM can veer uncomfortably close to Ponzi status, especially if the emphasis is on distributors selling to other distributors downstream instead of to end users.

But any concern about Herbalife’s use of MLM receded over the years. Then in a conference call Tuesday – while Herbalife was reporting its best quarter ever – renowned short-seller David Einhorn questioned, essentially, why Herbalife doesn’t do a better job of reporting sales to end users. Herbalife said, basically, it doesn’t think it’s relevant to report it precisely. That brought up the specter of the P-word, Herbalife’s old problem. The stock plunged 20 percent.

The following day, Wednesday, Herbalife put out more information to allay those concerns, but the stock slid more than 6 percent. On Thursday, Herbalife announced it was accelerating its stock buy-back program, but the stock swooned an additional 12 percent.

The big fear, according to various reports last week, was that the influential Einhorn may be short-selling Herbalife, which could well drive down the price.

Maybe so. But another fear is that last week’s events all but invite an inquiry from the Securities and Exchange Commission or the Federal Trade Commission. The Obama administration may have its knives out for the company since Johnson, the CEO, has donated to such Republicans as Tim Pawlenty and reportedly was a supporter of Rick Santorum.

In its impressive comeback, Herbalife has done just about everything right. But alas, it failed to abandon its MLM strategy. As a result, Herbalife’s story of redemption may not be finished yet.

Charles Crumpley is editor of the Business Journal. He can be reached at [email protected].