US regulator launches Herbalife investigation

  • 12 March 2014
  • From the section Business
Herbalife products
Image caption Herbalife's sales operations have come under scrutiny

US regulators have launched an investigation into the operations of nutrition and weight-loss firm Herbalife.

The move by the US Federal Trade Commission (FTC) follows allegations that the company operates a 'pyramid scheme' - making money from recruiting new distributors, rather than sales.

Herbalife has denied these allegations and said it would "cooperate fully" with the FTC inquiry.

Its shares fell by as much as 16%.

But they recovered slightly and ended the day down by 7%.

"Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace," the company said in a statement.

"We are confident that Herbalife is in compliance with all applicable laws and regulations."

Under scrutiny?

The investigation comes just a day after prominent hedge fund manager, William Ackman, renewed his attack on the firm.

Mr Ackman has been one of Herbalife's biggest critics and has a $1bn (£600m) short sale position on the firm's stock - betting that the share price will drop.

He first publically accused Herbalife of running a pyramid scheme in 2012.

Image caption Hedge fund manager William Ackman is a strong critic of the company

On Tuesday, Mr Ackman accused the company's China business of violating direct-selling laws in the country, something Herbalife denies.

China is one of the fastest growing markets for the firm and its sales there rose 65% in 2013.

The firm sells a range of nutritional products across the globe through a network of independent distributors.

It reported revenues of $4.8bn in 2013, a jump of 18% from the previous year.

The firm's shares have risen by more than 50% over the past 12 months.

Herbalife has got the backing of billionaire investors George Soros and Carl Icahn, who have picked up stakes in the firm.

Mr Icahn owns nearly 17% of the Herbalife's shares.

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