February 4, 2013 7:14 pm

Herbalife under pressure on probe report

Herbalife shares dropped 12 per cent before recovering the ground, in another day of rollercoaster trading triggered by questions about the business model of the nutritional supplement distributor.

The company is under attack from short seller Bill Ackman who has called Herbalife an illegal pyramid scheme and placed a $1bn bet against the value of its stock.

Herbalife has denied the accusations and said that its business model is legitimate.

The company recruits sales people to market its protein shakes and vitamin pills direct to consumers, and its share price has become an effective referendum over the likelihood of regulatory action against a 30-year-old group that operates in 80 countries.

After five days of losses, Herbalife shares dropped as much as 12 per cent on Monday following a New York Post report that Herbalife was the subject of a law enforcement investigation, citing documents obtained from the Federal Trade Commission under a freedom of information request.

The company said that it was undertaking a voluntary dialogue with regulators, was “unaware of any other regulatory interest and/or investigation”, and was “demanding a correction from the NY Post”.

The newspaper report said the FTC had explained redacted sections of the documents as it “didn’t have to divulge ‘information obtained by the commission in a law enforcement investigation’.”

However on Monday the FTC corrected its statement. It said that text was redacted because it cannot disclose consumer complaints obtained from foreign sources if they request confidentiality.

Herbalife shares ended the day up 1 per cent at $35.54 per share. Since Mr Ackman announced his short campaign, they have traded as low as $26 and as high as $46.

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