Herbalife Ltd (NYSE:HLF) is offering some of its top members legal representation after authorities contacted some of the Multi-level Marketing company’s biggest distributors with questions about their business practices.
According to a report carried by CNBC, the Federal law enforcement officials got in touch with ten of the company’s top members in order to get information on how their businesses are ran. Herbalife Ltd (NYSE:HLF) operates on an MLM model meaning that the people who sell its products aren’t employees they are independent distributors who buy the products themselves and sell them on at a higher price.
Law enforcement troubles harry Herbalife
The CNBC report didn’t contain much information about the specific nature of the enquiry, nor did it go into who the member affected by it were. At this stage all that is known is that a federal agency is looking for information from some of Herbalife’s top members, and the corporation has offered them legal help in response.
This isn’t the first time that Herbalife Ltd (NYSE:HLF) has had trouble with Federal agencies, however, and one of the major reasons that the company has been in the news in recent years is because of the possibility of a wide-ranging investigation into the company’s trade practices.
Herbalife defense continues
In the last year Herbalife Ltd (NYSE:HLF) shares have lost close to 25% of their value on the back of claims it is operating a pyramid scheme and worries that authorities may seek to close down the firm’s business or hamper its operations. In March of 2014 the FTC opened an investigation into the company’s operations.
The FTC investigation was supposed to conclude whether the firm operated an illegal pyramid scheme, but has yet to release a public conclusion. It is possible that the enquiries reported by CNBC are part of the FTC investigation, though they may be part of a related FBI investigation that isn’t targeting Herbalife LTd (NYSE:HLF), but is instead targeting the major investor betting against it.
Ackman continues loss
Bill Ackman, founder of hedge fund Pershing Square began shorting Herbalife Ltd (NYSE:HLF) very publicly at the end of 2012. An FBI investigation, which got underway earlier this year, is seeking to find out whether the stock has been manipulated during that campaign. The bureau has questioned people connected with the hedge fund according to a report from the Wall Street Journal.
Short positions are not recorded in hedge fund disclosures to the SEC, so it’s impossible to tell what precise financial state the Herbalife Ltd (NYSE:HLF) has left Ackman in. The company’s stock was trading at more than $45 when Ackman revealed his short to the public back in 2012.
On today’s market the firm’s shares will open at $42.91. That means that Ackman may be ahead a little on his bet, but holding a short for more than two years is an expensive hobby. Pershing Square, Ackman’s hedge fund, was one of last year’s best performers with an incredible return of more than 40%. Herbalife shares lost more than 50% of their value last year.
Update 9:10 EST: The seventh paragraph was changed to reflect that Mr. Ackman himself has not been revealed as the target of any investigation.