Herbalife Ltd., the nutrition company that hedge fund manager Bill Ackman has accused of being a pyramid scheme, disclosed that the U.S. Federal Trade Commission has started a civil investigation into its practices.
Herbalife shares fell 7.4 percent to close Wednesday at $60.57 in New York. The shares have gained 43 percent since Ackman first made his accusations.
In 2012, Ackman made a $1 billion bet against Herbalife’s shares and started working to persuade regulators to shutdown the company, saying it misleads distributors, misrepresents sales figures and sells a commodity product at inflated prices. Herbalife has repeatedly denied Ackman’s allegations while winning over allies including billionaire Carl Icahn and Post Holdings Inc. Chairman William Stiritz.
“Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace,” a statement from the Cayman Islands based company said Wednesday. “We are confident that Herbalife is in compliance with all applicable laws and regulations.”
Ackman’s Pershing Square Capital Management and Justin Cole, a spokesman for the FTC, declined to comment.
The FTC, along with the U.S. Securities and Exchange Commission, had been asked by U.S. Sen. Edward Markey, D-Mass., to look into Herbalife’s business practices. An advocacy group called the League of United Latin American Citizens also has met with FTC Chairman Edith Ramirez to describe purported abuses by the company. Ramirez told Markey in a letter last month that his concerns were being “carefully considered.”
The New York Times reported this week that Ackman had donated $10,000 to the advocacy group and hired a former aide to Markey as part of his anti-Herbalife campaign.
The civil investigative demand disclosed Wednesday isn’t an indication of wrongdoing and is essentially a subpoena requesting information, Michael Swartz, an analyst at SunTrust Banks Inc. in Atlanta, said Wednesday in a note. Swartz, who recommends buying Herbalife shares, said the investigation may take six to 12 months and doesn’t change his views on the company.
“Ironically, the FTC’s action could be a longer-term positive for the stock,” he said. For now, though, the shares will trade in a limited range, Swartz said.
Business, Pages 28 on 03/13/2014