Herbalife shares plunge on government probe report

Updated 1:35 p.m. ET

Shares of Herbalife (HLF), the multilevel marketer at a center of a huge fight among Wall Street billionaires, were falling Monday on a New York Post report that the company is facing a law enforcement probe.

The Post uncovered 192 complaints lodged against the Cayman Islands company after it filed a Freedom of Information Act request with the Federal Trade Commission. Some of the complaints refer to "pending law enforcement action," though it isn't clear whether the issue is civil or criminal.  

Investors didn't seem to care about this distinction. Shares of the company, which have fallen more than 40% over the past year, dropped $1.07, or 3%, to $34 in early afternoon trading. They rebounded from steeper losses earlier in the day.

Herbalife denounced the Post story as "misleading an inaccurate" and said it was demanding that the paper print a correction.

"Other than the voluntary dialogue with regulators, which we communicated on our January investor day, we are unaware of any other regulatory interest and/or investigation," Herbalife said in a statement. "For a direct-selling company of our size, we have had a relatively low number of complaints to the FTC. However, we take every one of them seriously and stand by our record of doing right by our distributors and all consumers of our products."

 
Battle lines have been drawn on Wall Street over Herbalife among warring billionaire investors.

Bill Ackman, best known for his huge bet on floundering retailer J.C. Penney (JCP), stunned Wall Street in December when he announced that he had taken a short position in Herbalife and accused the company of being a pyramid scheme. Daniel Loeb, a billionaire who has bet big on Yahoo (YHOO), backed Herbalife and took an 8.24% stake in the company. To complicate matters further, activist investor Carl Icahn has joined the Herbalife fray attacking Ackman. The two even took their battle to the airwaves of CNBC last month, much to the delight of the business news channel.

"The FTC received complaints about false promises Herbalife made and the difficulty distributors had in collecting income owed and in getting refunds," according to the Post. "Some, months and years before Ackman did so, told the FTC they believed the company is a pyramid scheme."

Not surprisingly, Ackman, who profits when Herbalife's shares fall, was pleased with the Post's story, telling the tabloid that he had more confidence in government regulators than the company's shareholders.

One thing is certain:  The battle over Herbalife  is far from over.

Jonathan Berr doesn't own shares of the listed stocks. Follow him on Twitter @jdberr.

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