Why Herbalife Shares Got Dumped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Herbalife were looking unhealthy today, falling 10% after a U.S. lawmaker called for an investigation into the multilevel marketing company.

So what: This morning, Senator Edward Markey (D-Mass.) leveled a familiar accusation at the health-supplement supplier, calling it a "possible pyramid scheme." His office said in a press release that Markey had received complaints from constituents about "improper pressure and financial hardship" related to the company's dealings. Markey said he sent letters to the SEC and Federal Trade Commission, as well as to Herbalife itself, in an effort to get more information on the company.


Now what: This is far from the first time the "pyramid scheme" charge has been lobbed at Herbalife. Hedge fund manager Bill Ackman similarly lambasted the company a year ago in a blistering short thesis, and peer Nu Skin Enterprises was also called a pyramid scheme by an official Chinese newspaper last week. A Herbalife spokesman said the company received the letter and looks "forward to an opportunity to introduce the company to him and address his concerns at his earliest convenience." Shares have bounced back strongly from Ackman's charges a year ago as Carl Icahn took to the company's defense, but this is clearly a battleground stock. Any investors hopping on for a ride should expect it to be bumpy.

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The article Why Herbalife Shares Got Dumped originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has the following options: long January 2015 $50 calls on Herbalife Ltd.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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