According to reports, weight loss and nutrition company Herbalife Ltd. is at the center of a federal investigation. Both the Federal Bureau of Investigation and U.S. Department of Justice are alleged to be looking into the business practices of the organization.
The news, which was first reported by the Financial Times, led to a fourteen percent drop in Herbalife’s stock prices.
The FBI is being fairly tight-lipped in the matter. Spokespersons for the agency will not confirm or deny that an investigation of Herbalife is taking place. It is known that there have been no charges of any kind filed at this time.
Sources close to the ongoing FBI probe have not been willing to give many details beyond the fact that a investigation of the Los Angeles, California based company has been occurring for some time.
Memo to Herbalife: Look at it this way. You welcomed the FTC investigation and the DOJ and FBI crashed the party. $HLF
— Sam E. Antar (@SamAntar) April 11, 2014
— Juan H. Trevino (@JuanitoTrevino) April 11, 2014
Reuters reported that former Herbalife distributors had been contacted by the FBI with regard to the company’s business practices. This includes the method in which new members are brought into Herbalife.
Former distributors are also said to have handed over Herbalife documents to federal investigators.
What’s the reason for an alleged probing of Herbalife?
In the past, the company had been accused of being a glorified “pyramid scheme” by hedge fund manager William Ackman. It seems the notion of such a scheme isn’t too far away from the concerns expressed by government agencies about Herbalife’s business practices.
In such a scheme members are told to sell products or services, but are made to understand that they will not be making as much money until they bring in other individuals. The money flows upward, with persons on the bottom of the “pyramid” are paid very little or not at all.
Herbalife said that it has not been directly contacted by the FBI regarding any investigation and it also vehemently denies being any sort of pyramid scheme. Apparently it’s not unusual for the government body to conduct a serious investigation of a company without having notified it of a probe.
These series of federal investigations are just the latest.
The Federal Trade Commission is also said to be taking a close look at how the business operates.
Herbalife is a company with a network of distributors in 80 countries. China is said to be its fastest growing market.
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