Herbalife

Shares of Herbalife (HLF - Get Report) tumbled Friday after federal securities regulators announced a $20 million settlement with the dietary and nutritional supplements marketer over allegations the company misled investors about its sales operations in China.

Herbalife's stock price fell 2.15% to $37.78 after the announcement by the Securities and Exchange Commission that it had reached a settlement with Herbalife over charges it told investors multi-level marketing wasn't allowed in China, but then proceeded to effectively run a multi-level marketing system without disclosing it.

In its quarterly and annual filings with the SEC, Herbalife told investors that China only allows direct selling, not multi-level marketing, resulting in a different business model for the company's sales activities in China compared to the multi-level marketing approach it uses in other countries.

Instead, Herbalife "employed a very similar compensation model in China to the one it employed in every other country," the SEC noted, arguing the alleged misrepresentation "deprived investors of the information they needed to fully evaluate the risk of investing in Herbalife stock."

"Herbalife deprived investors of valuable information necessary to evaluate risk and make informed investment decisions," said Marc P. Berger, director of the SEC's New York regional office, in a press statement. "When making disclosures to investors, issuers must ensure that those disclosures are accurate."

While agreeing to the conditions of the SEC settlement, Herbalife has neither admitted to or denied the findings, the agency said in a press statement.

The move comes more than a year and a half after billionaire investor William Ackman ended a six-year long short-selling campaign against Herbalife.

The head of Pershing Square Capital Management argued Herbalife was an illegal pyramid scheme. In a presentation in March, 2014, Pershing took aim at Herbalife's China sales practices, calling the company's claims that it used a hourly compensation system in the country a "sham."

However, investors continued to back the stock, with the embattled company having drawn support from fellow billionaire Carl Icahn, who became its biggest shareholder.

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