Herbalife shares bounce back from 2-year lows
NEW YORK (AP) — Shares of Herbalife Ltd., which have fallen 39 percent over the last week amid criticisms of the company's business model, bounced back on Wednesday.
Hedge fund manager William Ackman alleged last Wednesday that Herbalife is a pyramid scheme and said he has taken a short position on the company's stock. Short-sellers make money when the shares they're betting against decline.
Herbalife sells nutrition and weight-loss products through a global network of distributors. Ackman said Herbalife is misrepresenting some of its financial information and said distributors make more money from recruitment than from sales.
Herbalife replied that the pyramid scheme allegation is "bogus" and suggested that Ackman is trying to illegally manipulate its stock price to make money. Ackman's comments drove the stock to a low of $24.24 by Monday, their weakest level since July 2010. Stock markets were closed Tuesday for Christmas Day. Herbalife stock added $1.66, or 6.4 percent, to $27.72 in afternoon trading.
It's the second time in 2012 that Herbalife stock has taken a plunge after a well-known investor raised concerns about its business. David Einhorn of Greenlight Capital had asked on May 1 how much of the company's products are sold to consumers who are not distributors and why the company had not disclosed its breakdown of different kinds of distributors in its last regulatory filing, which it had in previous quarters.
The shares have lost 63 percent of their value since April 30.