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Herbalife faces FTC inquiry after activist campaign

13 march 2014, 16:15
0
©Reuters/Brendan McDermid
©Reuters/Brendan McDermid
The US Federal Trade Commission has opened a civil investigation into Herbalife, AFP reports according to the nutritional products marketer.

Herbalife, which has been accused for more than a year by activist investor William Ackman of running a pyramid scheme, said it was "confident" it would be vindicated.

"Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace, and will cooperate fully with the FTC," the company said.

"Herbalife is a financially strong and successful company, having created meaningful value for shareholders, significant opportunities for distributors and positively impacted the lives and health of its consumers for over 34 years."

The investigation follows repeated criticism of the company by Ackman, head of hedge fund Pershing Square, who has described Herbalife as a scam that makes money by recruiting more distributors rather than selling nutritional products, diet food and other items to consumers.

The activist's latest broadside came Tuesday when he accused Herbalife of extending the pyramid- scheme model to China, violating Chinese laws on recruiting and compensating sales staff in the process.

The company's securities filings are "false and misleading" on China, he added.

Herbalife, which has consistently denied Ackman's charges, said the latest Pershing Square attack "reflects Mr. Ackman's continued failure to fundamentally understand Herbalife's business model."

Herbalife said it follows the law in China, where it "has established itself as a leading nutrition brand and legitimate direct-selling company."

Ackman has reportedly bet more than $1 billion that shares of Herbalife would decline. Besides talking up his case to investors, he has lobbied lawmakers in Congress to scrutinize the company.

He last year sparred in a joint television appearance with fellow billionaire Carl Icahn, who sharply criticized Ackman's arguments on the company. Icahn is the company's biggest investor with a 16.8 percent stake.

Herbalife shares fell 7.4 percent to $60.57 after disclosing the probe.

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