FBI conducting a probe into Herbalife: sources

Fri Apr 11, 2014 7:58pm EDT
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By Emily Flitter and Svea Herbst-Bayliss

NEW YORK/BOSTON (Reuters) - The FBI is probing Herbalife Ltd, the nutrition and weight loss company that hedge fund manager William Ackman has called a pyramid scheme, sources familiar with the investigation said on Friday.

The news, first reported by the Financial Times, sparked a sharp sell-off that sent the stock price down nearly 14 percent.

One source briefed on the matter said that the investigation has been going on for some time, but declined to give further details. A spokesman for the Federal Bureau of Investigation in Boston declined to confirm or deny the investigation. So far no charges have been filed in the matter.

Former Herbalife distributors reached by Reuters said they had been contacted by agents who were interested in finding out more about the multilevel marketing company's business practices, including how it recruits new members into its distribution scheme.

FBI agents are also reviewing Herbalife documents obtained from former distributors, two other sources familiar with the matter said.

Herbalife said on Friday that the company has not received any inquiries from the FBI or the Justice Department about any investigation. But it would not be unusual for law enforcement to investigate a company without telling executives about it.

The company has steadfastly denied running a pyramid scheme, where distributors earn more money for recruiting new members into the scheme than they do by selling products to consumers.

News of the FBI probe comes roughly a month after Herbalife confirmed that the Federal Trade Commission had issued a civil investigative demand to the company to look more closely at how it works. In January, U.S. Senator Edward Markey called on the FTC and the Securities and Exchange Commission to investigate the company, in part because of allegations from civil rights groups that Herbalife unfairly targets minorities. Herbalife denies this.   Continued...

The Herbalife logo is seen on a building housing some of their offices in downtown Los Angeles, California April 28, 2013. REUTERS/Lucy Nicholson