Report: Federal Law Enforcement Poking Around At Herbalife

Despite receiving good news from a judge who dismissed a lawsuit against the company, claiming that its business model is a pyramid scheme, it seems Herbalife is still fighting other battles. A new report cites insiders at the company who say federal law enforcement officials have been asking questions at Herbalife, and getting in touch with some members individually.

CNBC reports that some federal law enforcement agencies have contacted Herbalife members to learn more about their own business practices, with a focus on about 10 of mostly top members, sources familiar with the matter said.

Herbalife sells its products directly by using a network of independent distributors. Those distributors then sell the products and make money with off the sales sales, as well as getting commissions from other people they set up in the business.

But as to what the agencies are asking about or who they’re talking to, it’s unclear. The company has offered to get legal counsel for the members, the sources add.

In an entirely separate situation, Herbalife is fielding inquiries about irregular trading in its stock as part of a bigger investigation into possible market manipulation.

An Herbalife spokesman offered comment to CNBC, saying:

“Bill Ackman has been engaged in a nearly three-year effort to drive down Herbalife’s stock in order to enrich himself and his investors. There is reportedly an ongoing federal criminal investigation into his campaign against Herbalife for stock manipulation and law enforcement and regulators have recently sought information from Herbalife and others relating to that investigation as well as trading in Herbalife shares and allegations about our business practices. We are cooperating with these requests for information, remain confident in the integrity of our business practices, and are hopeful Ackman’s long-term campaign of distortion will be found to be illegal.”

Ackman, of Pershing Square Capital Management, has been crusading against Herbalife since December 2012, though Herbalife has maintained all along that it’s not a pyramid scheme.

In dismissing the pyramid scheme accusations against Herbalife last month, U.S. District Judge Dale Fischer in Los Angeles said that the shareholders suing the company failed to show that questions about its business raised by hedge fund manager Ackman and various investigators showed that the company had fraudulently inflated its stock price.

Herbalife Contacted by Law Enforcement Agencies [CNBC]

by Mary Beth Quirk via Consumerist