Herbalife Shares Tumble Amid Report of Criminal Probe

Wall Street Journal/April 11, 2014

By Steven Russolillo

Herbalife Ltd.HLF -13.97% shares slumped sharply Friday following a report that the the U.S. Department of Justice and the Federal Bureau of Investigation are investigating the nutritional-supplement maker.

The criminal investigation comes after the Federal Trade Commission last month started its own investigation into Herbalife, a company that has spent more than a year battling hedge fund manager BIll Ackman over allegations that it operates a pyramid scheme.

News of the criminal investigation was reported by the Financial Times. The inquiry may not lead to any charges, the publication said, and Herbalife has not been accused of any wrong doing.

Shares slumped 14% to $51.48 Friday on heavy trading volume.

“We have no knowledge of any ongoing investigation by the DOJ or the FBI, and we have not received any formal nor informal request for information from either agency,” Herbalife said in an emailed statement. “We take our public disclosure obligations very seriously. Herbalife does not intend to make any additional comments regarding this matter unless and until there are material developments.”

Herbalife has been in the spotlight since late 2012 when Mr. Ackman bet more than $1 billion that Herbalife shares would fall. He called the business model a pyramid scheme and said the company should be investigated by federal authorities.

The company has vehemently denied his allegations and has touted the legitimacy of its business on various occasions. Mr. Ackman’s stance has also prompted a bitter public battle with investing titan Carl Icahn, who has taken a sizable stake in the company and has representation on Herbalife’s board.

Herbalife shares were one of the top performers last year and climbed as high as $83.51 in early January. But the stock slumped since then and is now down 33% this year.

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