Editor’s note: This article was first published in April 2014; the share-price fall of 11 April 2014, the 35% year-to-date loss, Ackman’s $0 target and the reported Justice Department and FBI criminal inquiry were current news at that time. In July 2016 Herbalife settled with the US Federal Trade Commission, agreeing to pay 200 million dollars and to restructure its US business; the FTC did not label the company a pyramid scheme.
On Friday, with an hour to go before the market close, Herbalife shares began a steep slide that ended at almost -15%, the largest drop in the company’s history. The stock has now lost 35% so far this year.
Someone leaked to the Financial Times that the US Department of Justice and the FBI were carrying out a criminal investigation into possible irregularities in the company’s business model. Until now, what we did know was that the FTC (Federal Trade Commission) had a civil investigation under way into the company.
The fact that the FBI has stepped in could complicate matters for the company and its thousands of distributors around the world.
The whole investigation revolves around the arguments of millionaire fund manager Bill Ackman, who believes that Herbalife operates an illegal pyramid scheme in which its distributors (most of them, in his view, lured by promises of achieving financial freedom) lose money or make none, while the company profits from the constant turnover of distributors.
Ackman still believes Herbalife’s shares are worth $0.
- How much do Herbalife distributors earn?
- The man who will decide whether Herbalife is a multi-level marketing business or a pyramid scheme
Featured image: Aude, CC BY-SA 3.0, via Wikimedia Commons.
