SEC probing hedge funds' bets on Herbalife

Fri May 2, 2014 12:02am EDT
 
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BOSTON (Reuters) - The U.S. Securities and Exchange Commission (SEC) is probing whether a number of hedge funds many have acted improperly when they made bets on nutrition and weight loss company Herbalife Ltd last year, a source said.

The regulator is reviewing whether investors may have engaged in market manipulation or failed to properly disclose that they were working as a group when they lined up against billionaire investor William Ackman's short bet against the company, said the person, who is familiar with the investigation put not permitted to discuss it publicly.

A spokesman for the SEC was not immediately available to comment. An official at Herbalife also declined to comment.

The story was first reported by the New York Times.

Ackman publicly announced in December 2012 that his $13.6 billion Pershing Square Capital Management fund had wagered $1 billion short bet, alleging that Herbalife was running a pyramid scheme and that its stock price would eventually drop to zero.

The SEC, the Federal Trade Commission (FTC), several state prosecutors and the Federal Bureau of Investigation (FBI) are looking into these allegations.

A spokeswoman for Pershing Square did not immediately respond to a request for comment.

Herbalife has steadfastly denied running a business where members earn more for recruiting other members into the scheme than for selling its products to retail customers.

But the SEC is now also looking to find information on which hedge fund managers attended a so-called ideas dinner last year and what was said about Herbalife, shortly before a group of funds took long positions in the company. No one has been accused of any wrongdoing.   Continued...

 
A Herbalife logo is shown on a poster at a clinic in the Mission District in San Francisco, California April 29, 2013. REUTERS/Robert Galbraith