February 28, 2014 / 11:15 PM / 5 years ago

FTC says considering lawmaker's concerns about Herbalife

BOSTON (Reuters) - The Federal Trade Commission on Friday refused to tip its hand on how it may be react to allegations that Herbalife is a fraud, but said it is taking a lawmaker’s concerns about the company seriously and underscored its record of shutting down pyramid schemes.

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

Billionaire investor William Ackman put a spotlight on the company when he made a $1 billion bet more than a year ago that the nutrition and weight loss firm is running a pyramid scheme and will go bust under regulatory scrutiny. So far, the bet has cost him hundreds of millions of dollars in paper losses as Herbalife’s share price has climbed and no regulator has publicly disclosed its intention.

In a letter sent to U.S. Senator Edward Markey, Edith Ramirez, the regulator’s chairwoman, said various factors, including how consumers are affected, help determine whether the Commission acts. But rules prevent her from telling Markey, or anyone else, what her agency is doing or thinking.

“With respect to the allegations against Herbalife, Ltd., a number of statutory provisions and the Commission Rules of Practice prevent me from discussing what action, if any, the Commission may take in any particular situation,” her letter said.

Herbalife shares closed at $66.60 on Friday, down 38 cents, or 0.57 percent.

The company vehemently denies claims that it runs a pyramid scheme or that its distributors earn more for attracting new members than for selling its products to the public.

Last month Markey, a Massachusetts Democrat, waded into the fight when he publicly asked two regulators, the FTC and the Securities and Exchange Commission, plus the company itself to answer some basic questions about how the business works. He cited complaints by constituents who said they had lost money after joining Herbalife as distributors.

Ramirez sent her agency’s letter to Markey on the day the lawmaker had set as a deadline for a response. “I can assure you, however, that the information you provided and the concerns you expressed are being carefully considered,” she wrote. Markey said he was reviewing the response.

Herbalife responded last week and said that Markey was satisfied with its explanations of how it makes money.

Ramirez also urged consumers to come forward with their own experiences about having joined Herbalife’s multi-level-marketing plan and wrote in detail about the regulators’ record of putting an end to pyramid schemes.

Ackman has been highlighting top Herbalife distributors’ claims of making money quickly, which he says are untrue.

The battle over Herbalife’s future has taken on a fevered pitch as civil rights groups have echoed Ackman’s claims that Herbalife distributors have lied about how easily and quickly people can make money by joining.

But the company, whose stock price has climbed 81 percent in the last 52 weeks, has prominent supporters as well, including Wall Street titans Carl Icahn and William Stiritz, who have taken big stakes in Herbalife.

Earlier on Friday Ackman said he would next month lay out evidence to support his claims that Herbalife is breaking the law in China, one of its fastest-growing markets.

Herbalife called the claim baseless and said the timing of Ackman’s latest broadside was suspect. “We are confident in our consumption based business model in China,” a company spokesman said, adding: “It is no accident that this attack comes on the final trading day of the month.”

Although Herbalife’s stock gains have weighed on returns at Ackman’s $12 billion Pershing Square Capital Management, his hedge fund gained 4 percent last month and was up again this month, a person familiar with the returns said.

Reporting by Svea Herbst-Bayliss; Editing by Richard Valdmanis, David Gregorio and Dan Grebler

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