NEW YORK (AP) -- Herbalife will make its case to Wall Street on Thursday as a pair of billionaire hedge fund titans square off about whether the nutrition supplement business amounts to a pyramid scheme.
On Wednesday Herbalife Ltd. announced that well-known investor Dan Loeb's Third Point LLC purchased 8.9 million shares in the company, which signs up independent distributors to sell supplements and weight loss products. This amounts to an 8.2 percent stake.
The Wall Street Journal reported Wednesday that the Securities and Exchange Commission opened an inquiry into the company. The Journal cited an unidentified person. Representatives for the SEC and Herbalife both declined to comment.
Third Point's stake in Herbalife, which suggests support for the business, was disclosed in a regulatory filing Wednesday. On the other side of the spectrum is hedge fund manager William Ackman of Pershing Square Capital. Ackman alleged last month that Herbalife was a pyramid scheme and said he was shorting its stock. Short-sellers make money when the shares they're betting against decline.
Under a pyramid scheme, a company makes most of its money by recruiting people to join the program, rather than turning a profit on the products that they sell.
Herbalife said that the pyramid scheme claim was "bogus" and suggested that Ackman was trying to illegally manipulate its stock price to make money.
Another well-known investor, Greenlight Capital's David Einhorn, had also raised concerns about Herbalife's business in May.
Herbalife's stock hit a low of $24.24 in late December as a result of Ackman's allegations, their weakest level since July 2010. Shares have lost close to half their value since the end of April.
Its shares rose $1.25, or 3.1 percent, to $41.20 in premarket trading Thursday. They have traded in a 52-week range of $24.24 in late December to $73 last April.
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