Herbalife Hit with Civil Investigation by FTC

Wall Street Herbalife
Richard Drew/AP
By Matt Egan

Herbalife (HLF), the controversial nutrition company under assault from billionaire Bill Ackman, has disclosed it has received a civil investigative demand from the U.S. Federal Trade Commission.

The news, which was first reported by Fox Business's Charlie Gasparino, represents a blow to a company that Ackman has bet more than $1 billion against amid claims it operates an illegal pyramid scheme. Herbalife's shares tumbled as much as 21.3 percent from their intraday highs on the disclosure.

The FTC's demand is similar to a subpoena and represents confirmation Herbalife is under investigation.

Ackman, head of hedge fund Pershing Square, has been pressuring lawmakers and civil groups to call on regulators to probe Herbalife's business practices for more than a year.

"Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace, and will cooperate fully with the FTC," the company said in a statement Wednesday. "We are confident that Herbalife is in compliance with all applicable laws and regulations."

Herbalife didn't disclose the scope or focus of the FTC investigation.
The nutrition company said it doesn't plan to make additional comments on the FTC matter unless there are "material developments."

Shares of Herbalife tumbled to as low as $54.59 after trading resumed following the FTC disclosure, representing a 16.5 percent tumble from Tuesday's close and a 21.3 percent plunge from intraday highs of $69.41.

Herbalife closed down 7.37 percent on the day at $60.57.

Despite the enormous pressure from Ackman, Herbalife ended the day almost 43 percent above its close of $42.50 on Dec. 18, 2012, the day before the hedge fund giant first publicly disclosed a $1 billion short bet.

The regulatory action impacted shares of other multilevel marketing companies, including Nu Skin Enterprises (NUS), which turned negative after having been up as much as 11.9 percent earlier in the day. Nu Skin was recently trading up 0.78 percent to $73.68.

According to the FTC, a civil investigative demand, or CID, may require the recipient "file written reports or answers to questions." Recipients may file petitions to limit or quash CIDs.

The FTC news comes just days after The New York Times published a lengthy examination of Ackman's campaign to convince regulators to probe Herbalife, action that should help ease his losses on the short bet.

The story recapped Ackman's tireless efforts, including organizing letter-writing campaigns and public demonstrations and even paying nonprofit groups to encourage them to support his efforts. Some people identified as letter writers told the paper they had no recollection of writing about Herbalife.

Ackman declined to comment on the FTC news.

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