Herbalife pyramid scheme investigated by FTC
US Federal Trade Commission has launched an investigation into the operations of nutrition and weight-loss firm Herbalife.
The FTC move follows allegations that the company operates a “pyramid scheme” – making money from recruiting new distributors, rather than sales.
Herbalife has denied these allegations and said it would “cooperate fully” with the FTC inquiry.
Its shares fell by as much as 16%.
But they recovered slightly and ended the day down by 7%.
“Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace,” the company said in a statement.
“We are confident that Herbalife is in compliance with all applicable laws and regulations.”
Herbalife sells a range of nutritional products across the globe through a network of independent distributors
The investigation comes just a day after prominent hedge fund manager, William Ackman, renewed his attack on the firm.
William Ackman has been one of Herbalife’s biggest critics and has a $1 billion short sale position on the firm’s stock – betting that the share price will drop.
He first publically accused Herbalife of running a pyramid scheme in 2012.
On Tuesday, William Ackman accused the company’s China business of violating direct-selling laws in the country, something Herbalife denies.
China is one of the fastest growing markets for the firm and its sales there rose 65% in 2013.
Herbalife sells a range of nutritional products across the globe through a network of independent distributors.
It reported revenues of $4.8 billion in 2013, a jump of 18% from the previous year.
The company has got the backing of billionaire investors George Soros and Carl Icahn, who have picked up stakes in the firm.
Herbalife shares have risen by more than 50% over the past 12 months.