This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Herbalife Tumbles as FTC Opens Investigation

Stocks in this article: HLF

Updated from 2:23 p.m. ET to include Kerrisdale Capital comment

NEW YORK (TheStreet) - The Federal Trade Commission has opened an investigation of multi-level supplements seller Herbalife (HLF - Get Report). The move comes over a year after hedge funder Bill Ackman of Pershing Square Capital Management took a $1 billion short position in Herbalife's shares and accused the company of being a pyramid scheme.

Herbalife disclosed the probe on Wednesday afternoon and said it "welcomes the inquiry" and will cooperate fully with the FTC. Dan McCrum of the Financial Times Alphaville blog first reported of the inquiry.

"Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace, and will cooperate fully with the FTC. We are confident that Herbalife is in compliance with all applicable laws and regulations," the company said.

"Herbalife is a financially strong and successful company, having created meaningful value for shareholders, significant opportunities for distributors and positively impacted the lives and health of its consumers for over 34 years," the Los Angeles-based company added.

A Pershing Square spokesperson declined to comment.

Shares of Herbalife, which were halted earlier today, were down 8.2% at $60.03 in mid-afternoon trading.

"It's interesting the stock is down only 8% on the news of the civil subpoena from FTC. I think the idea is that we'll finally put the regulatory issues to rest after the FTC investigation, although it may take a long time for the FTC to conduct its investigation," Sahm Adrangi, founder and CIO of hedge fund Kerrisdale Capital, a Herbalife investor, said.

"Given that it's practically impossible for the FTC to shut down the company's non-US operations, this development will accelerate the time when the long-term fundamentals of the story will ultimately overshadow the headline risk concerns."

Kerrisdale Capital believes Herbalife shares are worth over $100 a share under all regulatory scenarios and the firm won't be selling shares at current levels Adrangi said.

The FTC's inquiry is one of the most dramatic twists to Ackman's trade since he disclosed his short bet in December 2012. Since then, hedge funders such as Dan Loeb of Third Point Management and Carl Icahn have taken opposing bets to Ackman's short trade.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,672.60 -141.38 -0.79%
S&P 500 2,051.82 -11.33 -0.55%
NASDAQ 4,757.8790 +7.4820 0.16%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs