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Herbalife Longs Shouldn't Breathe Too Deeply: StockTwits.com

NEW YORK (TheStreet) -- Herbalife (HLF) long investors got some oxygen Monday. But they may be wise not to breathe too deeply, say investors on StockTwits.com.

$HLF going up which means a VIP did not get out safely. Sell on every pop. - nytrader60 (@nytrader60) Apr. 14 at 08:04 AM

Shares of the nutrition company rallied more than 6% after the company said it was not, to its knowledge, under investigation by either the FBI or Department of Justice. The Financial Times reported Friday, citing sources, that Herbalife was under investigation by the FBI, sparking a near 15% drop in shares.

"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 out public disclosure obligations very seriously. Herbalife does not intend to make any additional comments regarding this matter unless and until there are material developments." Despite the statement, cashtaggers noted that the FBI probably wouldn't announce that it was investigating a company for criminal actions until it filed charges. Advanced notice could spur a company to hide evidence of bad practices. Sentiment on the stock stood at 72% bearish, according to StockTwits' analytics.

$HLF Only a matter of time before the FBI and doj formally announce the investigations. - Unemployed College Grad (@win2betmore) Apr. 14 at 09:57 AM

$HLF Risk reward for today. New News can only take this down from here. No other way. lol. Short it at will. - Mike (@scottsdalem) Apr. 14 at 10:25 AM

Herbalife is facing a civil investigation by the Federal Trade Commission. The FTC is looking into claims by some Herbalife distributors and, most notably, short seller Bill Ackman that the company is, essentially, a pyramid scheme. Ackman argues that Herbalife makes money by selling marketing kits for its products to distributors who, primarily, sell those kits to other distributors with very little end consumption.

Herbalife maintains that it is a thriving company that relies on individual distributors to sell its diet products and nutritional shakes, much like Avon, $AVP, sells beauty products. Of course, some investors argue that the initial story in the Financial Times was based on bad information. They doubted that law enforcement had leaked news of an investigation and instead pointed the finger at Ackman and other shorts for spreading questionable information.

$HLF Just know that the news that came out about the investigation just gave short sellers a chance to cover and move on had no merit to it - BiopharmaPro (@BiopharmaPro) Apr. 14 at 11:44 AM

$HLF Sometimes where there's smoke there's just a charlatan blowing smoke.#Ackman - wolfgang von helsing (@vonHelsing) Apr. 14 at 11:40 AM

But most investors said that the FTC's civil investigation wasn't likely the only one. They waited for more news and the stock to trade down because of it.

$HLF Reality is very distant here. When you have FTC, DOJ, and FBI in ur house, one of em is going to find something. That's a fact Jack. - Mark S (@TechTrader17) Apr. 14 at 10:17 AM

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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