Federal Trade Commission Launches Civil Probe Into Herbalife

(RTTNews) - Nutrition supplements company Herbalife Ltd. (HLF), which has been accused of operating as a pyramid scheme, said Wednesday that it received a civil investigation demand from the Federal Trade Commission or FTC. Shares of Herbalife tumbled more than 7 percent in the regular trading session.

Herbalife said it welcomed the FTC probe due to the "tremendous amount of misinformation" in the marketplace and added that it will cooperate fully with the FTC. The company also said it does not plan to make any additional comments regarding the matter unless there are material developments.

A multilevel marketing firm, Herbalife sells nutritional supplements, energy, sports and fitness products. While its stock price has gained strength, the company has been dubiously portrayed by some critics as a pyramid scheme enterprise that will fail.

Its most acerbic critic has been William Ackman, the activist manager of hedge fund Pershing Square, who gas made a $1 billion bet that the company's stock price will fall. Meanwhile, key investor Carl Icahn believes that Herbalife has a legitimate business model. On January 24, Herbalife stock tumbled after Senator Ed Markey, a Massachusetts Democrat, called for a probe into the allegations.

Herbalife said Tuesday that it remained confident in its business in China and will continue to invest in the key market as well as collaborate with the Chinese government to deliver its nutrition supplements through lawful direct selling practices. The statement was in response to a presentation by Pershing Square, which said Herbal Life is operating in violation of Chinese law.

On Monday, Herbalife commented on a report dated March 10 in the New York Times with the headline "After Big Bet, Hedge Fund Pulls the Levers of Power" by Michael Schmidt, Eric Lipton and Alexandra Stevenson. The article detailed how Ackman employed a sophisticated and unprecedented campaign to exert pressure on lawmakers and regulators to investigate and destroy Herbalife, to protect the $1 billion bet he has made against the company.

In mid-February, Herbalife reported a profit for the fourth quarter that beat analysts' estimates, driven by robust growth in China, Americas and EMEA regions. The company's net income for the fourth quarter was $123.5 million or $1.15 per share, up from $112 million or $1.00 per share in the same period last year. Sales for the quarter jumped 20 percent to $1.27 billion from $1.06 billion in the prior year.

HLF closed Wednesday's regular trading session at $60.57, down $4.82 or 7.37 percent on a volume of 16.00 million shares. In after-hours, the stock further declined $0.45 or 0.74 percent to $60.12.