Herbalife Ltd. (HLF:US) is under investigation by Illinois Attorney General Lisa Madigan, who joined a growing group of officials and agencies looking into consumer complaints about the nutritional supplement company.
Maura Possley, a spokesman for Madigan, confirmed the probe today, saying customers had questioned whether the Cayman Islands-based business is a pyramid scheme. The consumers’ complaints were filed as early as December, with allegations dating back to 2008.
New York hedge fund manager Bill Ackman has publicly accused Herbalife of misleading distributors, misrepresenting sales and inflating the prices of its products. In 2012, the Pershing Square Capital Management LP principal made a $1 billion bet against Herbalife’s stock and set out to prove that the company is a pyramid scheme while calling on regulators to probe its practices.
The company, which sells products in more than 90 countries through a network of independent distributors, has repeatedly denied Ackman’s allegations. Herbalife has won allies such as billionaire Carl Icahn, who has become its largest shareholder.
“We are confident in the integrity of our longstanding business and the company’s compliance with applicable laws and regulations,” Herbalife said in a statement. “We look forward to working with the Illinois attorney general’s office to resolve the consumer complaints it has received.”
Herbalife products are distributed globally by 3.2 million independent contractors who market to family, friends, neighbors and strangers. Distributors can make money by purchasing product at a discount and selling it at markup, or by earning commissions for sales by distributors they recruit.
The company disclosed last month it was under investigation by the Federal Trade Commission, and people familiar with the matter told Bloomberg News last week that the Federal Bureau of Investigation also is investigating its practices.
U.S. Senator Ed Markey, a Massachusetts Democrat, asked both the FTC and the U.S. Securities and Exchange Commission to investigate the company.
Shares fell 0.3 percent to $55.10 at in New York after earlier rising as much as 2.7 percent. Herbalife, which is run from Los Angeles, slid 30 percent this year through yesterday, compared with a 0.8 percent gain for the Standard & Poor’s 500 Index.
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