Herbalife slides after NY Post reports gov't probe

Herbalife falls as NY Post report claims company is subject of law enforcement investigation

Associated Press

NEW YORK (AP) -- Shares of Herbalife slid Monday after a report that it is the subject of a law enforcement investigation. The nutritional supplements distributor has been defending itself against a hedge fund manager's accusation that it is a pyramid scheme.

The New York Post reported late Sunday night that that it found out about the investigation after the Federal Trade Commission released documents containing 192 complaints against Herbalife from the past seven years. The complaints, which reportedly included false promises made by Herbalife and difficulty the company's distributors had collecting income they were owed and getting refunds, were released by the FTC in response to a Freedom of Information Law request by the newspaper. But the FTC, reported the Post, said it didn't have to give out "information obtained by the commission in a law enforcement investigation." The agency's documents did not say whether the probe was criminal or civil, according to the Post's report.

Representatives for Herbalife Ltd. and the FTC have yet to respond to requests for comment.

The Wall Street Journal reported in early January, citing unidentified sources, that the Securities and Exchange Commission had opened an inquiry into Herbalife.

In December hedge fund manager William Ackman alleged that Herbalife was a pyramid scheme and that he was shorting the stock. Short-sellers make money when the shares they're betting against decline.

Herbalife has tried to refute Ackman's accusations, in January holding an analyst and investor meeting that detailed how its business operates and who its customers are. Ackman replied that Herbalife "distorted, mischaracterized, and outright ignored large portions" of his presentation.

The company has become a point of contention between several prominent Wall Street figures.

In a blowup on live television in late January, Ackman and billionaire investor Carl Icahn traded barbs over an old investment deal and Ackman's position in Herbalife. Speculation is rife that Icahn has a minor stake in Herbalife, but he has refused to comment on whether he holds a position or not.

Yet another investor, Dan Loeb of Third Point LLC, has disclosed an 8.2 percent stake in Herbalife, a vote of confidence in the company, while Greenlight Capital's David Einhorn, another prominent Wall Street figure, had raised concerns about Herbalife's business in May.

Herbalife's stock dropped $1.40, or 4 percent, to $33.67 in Monday afternoon trading. Through Friday's close, shares had dropped 18 percent since Ackman disclosed in December that he was shorting the stock.

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