Herbalife shares plunge on government probe report
Compaints filed with regulators refer to pending law enforcement action, according to one news report. The company says it's unaware of any investigation.
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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No where have I read anything about the products themselves. Do they work? Are they harmful to the consumer? I want to hear information about the products. Are consumers happy with the results? People can get the products without having to sell the products. Not sure how people are pressured into selling, no one comes to the door, I think you can quit anytime. Why not go after Pampered Chef, Silpada jewelry, jockey. These companies all have sales people trying to have you book parties. I have never been invited to a Herbalife party.
I watched the exposee on Herballife on MSNBC 'Selling the American Dream', and I can only recommend it. Ponzi-scheming in slow-motion, snake-oil salesmanship at its finest, but of course Herballife is just one of several right now STILL cooking after many decades. Bottom-line: the big promised money comes from bringing in OTHER distributor and NOT from selling products, and most wanna-be 'winners' become 'garage-qualifiers', buying tens of $1,000s of product until their savings and credit runs out.
Of course nobody likes the 'bearer of bad news' and even Madoff had whistel-blowers pointing the fingers at the obvious mathematical absurdity many years ago...
So the company was founded by a photogenic 24-year-old Beverly Hills whipper-snapper, after his wealthy mother od'ed and he needed a new cash-cow. He starts a company for HEALTH PRODUCTS, lives the SUPER-RICH lifestyle but ends up dead at 44 from accidental overdose of MULTIPLE drugs, alcohol and smoking... but don't tell that to the hardcore believers of a religion - they shun the brutal reality of scientific numbers!!!
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