Senior executives at Herbalife are confident that the company will not be shut down by the Federal Trade Commission, but they do suspect there will be penalties, according to Fox Business sources.
The company’s optimism is based on their belief that the FTC, which has been investigating Herbalife for seven months, typically acts quickly to shut down firms if they believe they are engaged in illegal activity, investors who have been briefed by company officials said. The company also said such drastic action rarely comes as a result of a civil probe.
However, Herbalife executives expect penalties, including fines and sanctions for failing to properly advise distributors about the potential to make money from selling its products.
Herbalife operates much like Avon. Its weight-loss shakes, protein bars, and other supplements are not available in retail stores, and can only be purchased from its distributors, who profit from both selling the products and recruiting others to do so.
In March, the FTC began an investigation into allegations that the downtown Los Angeles supplement company operates an illegal pyramid scheme that rewards distributors more for recruiting than it does for product sales.
The FTC investigation follows claims made in 2012 – and repeated often since – by Bill Ackman, chief executive of New York hedge fund Pershing Square Capital Management. He has accused Herbalife of operating a sophisticated pyramid scheme in violation of federal and state laws. Ackman bet $1 billion against Herbalife, predicting that its shares would plunge to zero once the jig was up.
Herbalife announced on Monday it hired Pamela Jones Harbour, a former official from the FTC, to oversee the conduct of its nearly 4 million distributors, a move that caused stocks to rise on Monday, but they have since fallen.
Herbalife shares fell two points in Tuesday trading to close $45.68.
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