On December 19, 2012, CNBC reported that Bill Ackman (“Ackman”), Founder and Chief Executive Officer of Pershing Square Capital Management, L.P. believed Herbalife to be a pyramid scheme after having spent a year researching the Company’s fundamentals. On this news, the price of Herbalife stock fell $5.16 per share, or 12.14%, from a closing price of $42.50 on December 18, 2012, to close at $37.34 per share on December 19, 2012.On December 20, 2012, Ackman conducted a presentation concerning Herbalife at the Sohn Investment Conference where he affirmed his conclusion that Herbalife is a pyramid scheme. Ackman alleged that since Herbalife’s founding, approximately 1.9 million distributors have failed to make any money from selling Herbalife products, costing them a net loss of $3.8 billion. On this news, the price of Herbalife stock fell $10.07 per share over two trading sessions, or 26.97%, from a closing price of $37.34 on December 19, 2012, to close at $27.27 per share on December 21, 2012. On January 9, 2013, the New York Times reported that the Securities and Exchange Commission (“SEC”) had launched an investigation into Herbalife. On January 23, 2014, U.S. Senator Edward J. Markey of Massachusetts sent letters to the SEC and the Federal Trade Commission (“FTC”), urging them to investigate Herbalife. Senator Markey also sent a letter to Herbalife’s CEO, defendant Michael O. Johnson, raising several pointed questions about the Company’s business, reflecting concerns expressed by Ackman in December 2012. On this news, the price of Herbalife stock dropped $7.61 per share, or 10.35%, from a closing price of $73.53 on January 22, 2014, to close at $65.92 per share on January 23, 2014. On April 11, 2014, the Financial Times reported that the U.S. Department of Justice and Federal Bureau of Investigation had launched a criminal probe of Herbalife. On this news, the price of Herbalife stock dropped $8.36 per share, or 13.97%, from a closing price of $59.84 on April 10, 2014, to close at $51.48 per share on April 11, 2014.
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