Herbalife Ltd. (HLF:US), the nutrition company accused of being a pyramid scheme by hedge fund manager Bill Ackman, fell for a second day after a U.S. senator called for a probe into its operations and on a report that a Chinese media outlet raised suspicions about the company’s legality.
The shares (HLF:US) slid 8.9 percent to $60.06 at the close in New York after dropping 10.4 percent yesterday. Cayman Islands-based Herbalife more than doubled last year.
The New York Post highlighted a report in First Financial Daily, a Chinese newspaper, which said “suspicion has been brought up” that Herbalife may be a pyramid scheme. The article was published in August and received little attention at the time, the Post said. However, a report in China’s People’s Daily last week scrutinized another U.S. company, Nu Skin Enterprises Inc., for being a “suspected illegal pyramid scheme.” That article prompted a 26 percent slide in the shares and triggered an investigation by China’s government.
Authorities in the Asian nation haven’t said whether they are looking into Herbalife, the Post said. Barb Henderson, a Herbalife spokeswoman, didn’t immediately respond to e-mailed requests for comment.
Nu Skin, which sells skin-care products, has denied the accusations and this week said it plans to continue to sell merchandise in China.
Yesterday, U.S. Senator Edward Markey, a Massachusetts Democrat, sent letters to the U.S. Securities and Exchange Commission and the Federal Trade Commission urging the agencies to look into Herbalife’s operations. Markey also wrote to the company and is seeking a response to his questions by Feb. 28. Herbalife has Markey’s letter and will “address his concerns at his earliest convenience,” Henderson, said in an e-mailed statement yesterday.
The Chinese allegations and Markey’s announcement are a boon for Ackman, who since December 2012 has been urging regulators, elected officials and community activists to look into the company, claiming it misrepresents sales figures, misleads distributors about potential earnings and sells a commodity product at inflated prices.
Ackman’s New York-based Pershing Square Capital Management LP initially sold short at least 20 million Herbalife shares and had lost money on the bet as the stock more than doubled in 2013 and investors, including billionaire Carl Icahn, backed the company. Ackman said in a letter in October that he’d replaced some of his equity short stake in the company with long-term put options. In November, he said he would take his bet against Herbalife “to the end of the earth.”
To contact the reporter on this story: Lindsey Rupp in New York at email@example.com
To contact the editor responsible for this story: Robin Ajello at firstname.lastname@example.org