Herbalife Ltd. signage is displayed outside of the company's corporate headquarters in Torrance, California

The US Department of Justice and the Federal Bureau of Investigation are investigating Herbalife, the multi-level marketing company that hedge fund manager Bill Ackman has alleged is a pyramid scheme, according to people familiar with the matter.

The criminal investigation by the FBI and US attorney’s office in Manhattan raises the stakes for Herbalife, which is already facing civil inquiries from multiple government agencies that are looking into the Los Angeles-based company and its associated network of independent distributors.

The inquiry may not lead to any charges. Herbalife has not been accused of any wrongdoing. Herbalife’s shares were down just over 2 per cent before the FT published news of the criminal probe and ended the day 14 per cent lower at $51.48.

Herbalife sells nutritional shakes and supplements through millions of distributors in more than 80 countries. As part of its campaign to have Herbalife closed down and drive its share price to zero, Mr Ackman’s hedge fund, Pershing Square, has published a series of dossiers on senior distributors who it alleges have helped perpetrate the pyramid fraud.

Representatives for the US attorney’s office and FBI in New York declined to comment.

Herbalife said: “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. 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.”

The Federal Trade Commission, which has authority to bring civil charges, confirmed earlier this year that it had opened an inquiry into the allegations.

Herbalife had previously said that it welcomed the FTC investigation as an opportunity to correct misinformation, intended to co-operate and was confident that it was compliant with all applicable laws and regulations.

The company has vigorously defended its reputation since Mr Ackman first aired his allegations in December 2012.

Other investors, including Dan Loeb and corporate raider Carl Icahn, have bet against Mr Ackman. Fellow titans George Soros and Bill Stiritz, another veteran investor and chief executive of cereal company Post Foods, have also thrown their money and reputations behind the company.

News of the investigation comes after three of Herbalife’s independent directors chose not to seek re-election after their terms expired.

Since Mr Ackman accused Herbalife of being a pyramid scheme, shares in the company have traded as low as $27, but recovered to a high of more than $80 in January, as investors debated the likelihood of regulatory action.

A pyramid scheme is a business where the majority of profits within the system accrue from recruitment, rather than genuine sales of a product to consumers. Like a Ponzi scheme, a pyramid scheme requires a steady stream of new recruits, almost all of whom will lose money.

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