The nutritional supplement company Herbalife said today that it was the subject of an investigation from the Federal Trade Commission. In a statement released today during a halt in the company’s stock trading, the company said that it today had “received a Civil Investigative Demand from the Federal Trade Commission.”
The company has been the subject of a more than yearlong campaign by activist investor Bill Ackman, whose hedge fund Pershing Square announced in December 2012 that it had a $1 billion bet that the company would fail. Ackman has described the company’s multilevel marketing organization as a “pyramid scheme” that exploits its distributors, the vast majority of which he claimed never make a profit from selling Herbalife’s products. Herbalife sells shakes and other products through a network of distributors that are compensated by their own sales and by the sales of distributors they recruit.
The company has constantly denied Ackman’s accusations and the the fight has turned into a lobbying and PR brawl that has cost both sides millions of dollars. Before it was halted, Herbalife was trading at just above $68, well above the $27.27 low it hit after Ackman first laid out his allegations that Herbalife was a pyramid scheme. Since that initial crash, Ackman’s fund has lost hundreds of millions on its short.
In January, Democratic Sen. Edward Markey wrote letters to the Federal Trade Commission and Securities and Exchange Commission asking them to look into Herbalife’s business practices. In response, the chair of the FTC, Edith Ramirez, said that FTC rules “prevent me from from discussing what action, if any, the commission may take in a particular situation” but that “I can assure you however that the information you provided and the concerns you expressed are being carefully considered.”
In its statement today, Herbalife said: “Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace, and will cooperate fully with the FTC. We are confident that Herbalife is in compliance with all applicable laws and regulations.”
The company’s stock is down more than 10% on the day to just over $58. It was trading at above $68 before the stock was halted.