Boston, MA 03/18/2014 (wallstreetpr) – The life seems to be going tough for the U.S. based nutritional products marketer Herbalife Ltd. (NYSE:HLF) as the US Federal Trade Commission recently opened a civil investigation against the firm following a complaint by activist investor William Ackman. Mr. Ackman, who heads Hedge fund Pershing Square -has accused that HFL is ruining a ponzi scheme like sales racket based on an unethical pyramid scheme. His basic accusation against HFL is that makes its source of income is more based on recruiting new distributors rather than selling its end user products like nutritional supplements, diet food etc. This makes HFL’s real financial strength invisible to market regulators. HFL has recently expanded its operations in China and Mr. Ackman has said that its policies clearly violates Chinese laws and may impact the trade relations between these two countries.
Herbalife Ltd. (NYSE:HLF), on the other hand, maintains that its financial strength remains robust and Mr. Ackman’s complaint a result of his wrong interpretation of its business model. On the issue of China the company has said that it has established itself as a leading nutrition brand in China and has no local legal hassle as it remains a legitimate direct-selling company in that country.
In a related event the Brian Herr, Massachusetts Republican candidate for Democratic U.S. Senator Edward Markey’s seat, recently filed an ethics complaint against his rival on the grounds that his endorsement of Mr. Ackman’s complaint is based on improper facts. In January 2014, the US Securities and Exchange Commission and the Federal Trade Commission was asked by Mr. Markey to open an investigation against Herbalife. The complaint also outlines that Markey’s move led to a significant 14 percent drop in HFL’s shares and may have and helped Mr. Ackman’s $1 billion short bet against the company. However following the initiation of a new probe against Herbalife Ltd. (NYSE:HLF) by FTC the case may take new turns that can make Herr‘s complaint somewhat irrelevant. A glimpse of HFL’s trouble can be seen from that fact its shares dropped by 7.4 percent following FTC’s announcement of a new probe.