SEC Opens Inquiry Into Herbalife

SEC Herbalife


As the battle heats up between Herbalife and hedge fund short sell Bill Ackman, the SEC's enforcement division has opened an inquiry into the company, being led by enforcement officials in the SEC's New York office.

The inquiry comes on the back of earlier scrutiny of its financial disclosures by the regulator's corporation finance division last year, and just a day before its meeting with investors to rebut the accusations that the direct seller is a ponzi scheme.

The USA Securities and Exchange Commission has opened an inquiry into Herbalife Ltd. amid an intensifying public battle between the seller of nutritional supplements and a hedge fund that argues it is a pyramid scheme, a person close to the probe said Wednesday.

The inquiry is being led by enforcement officials in the SEC's New York office, the person said. The probe won't necessarily result in any enforcement action, but it adds pressure on Herbalife a day before a meeting with investors at which the direct seller has promised a full rebuttal of the allegations lodged by hedge-fund manager William Ackman.

A spokeswoman for the SEC declined to comment. Herbalife had no immediate comment.

Mr. Ackman argued in a 300-plus slide presentation in December that Herbalife is a pyramid scheme, because its distributors earn more money recruiting other distributors than by selling products to end users. The company has said the claim is inaccurate, malicious and aimed at manipulating its stock price, charges Mr. Ackman has denied.

Mr. Ackman says his hedge fund, Pershing Square Capital Management LP, has bet more than $1 billion that Herbalife's stock will fall. He is opposed not just by the company but by others in the hedge fund community. On Wednesday, Daniel Loeb's Third Point LLC said it had taken an 8.2% stake in Herbalife, a bet that the stock will rise.

The inquiry by the SEC's enforcement division follows scrutiny of Herbalife's financial disclosures by the regulator's corporation finance division last year.


Get more information, facts and figures about Herbalife, click here for the Herbalife overview.

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Comments (11)

  1. The reason this is being taken seriously is that over 98% of people wanting to build a successful network marketing business fail. It is dramatically higher than new small businesses and franchising is only 10%.

    there is nothing wrong with our products, support systems, markets or people… and people can master the skills necessary for success…so… there is something fundamentally wrong with the business methodology we are using.

    Until we address this, expect more and more SEC investigations.

    PS internet marketing is NOT the answer. the failure rate in this opportunity is over 99%!

    1. Well I believe the main reason for the high failure is the fact that many people don’t treat NM seriously. They spend more time and effort in their own business or franchises due to high capital involved in it, while most people only pay just a very small portion of it in NM.

      Imagine if you had to pay millions of $ to be involved in a NM company? Would you only work a few hours a week? No!
      And a lot of these failures happen during the distributors’ first year and they just quit, while in franchises and own business, you can’t just quit and close them down that easily.

      Another thing is the fact that many people are just too skeptical with anything to do with NM.

  2. Guess that is why Herbalife stock went up 14cents today as another investor just bought a nice
    chunk of it today. no Rudy that is not how it least in most legit companies.
    look at history people join to buy at whole sale and use products is the case in most.

    SEC is more of a pyramid I would say.. but of course with limited incomes
    as they have to kiss ass and answer to each other on their given salaries

  3. Although the rumors are flying about an investigation, neither the SEC or Herbalife has said anything. For all we know the SEC is probing to see if Ackman violated any SEC rules and Regulations. We know his good buddy Einhorn has gotten nailed in the past for violations, as has a couple of the people he used as references for his conclusion that Herbalife is a pyramid…

  4. Corporate business does not want competition to their “pyramid” structure. Many Networking marketing businesses offer great value or exceptional quality at a fair price, just like it traditional “pyramid” businesses.

    Only in Network Marketing can someone who works diligently earn more money than those who became distributors before them.
    In a traditional business, will a new hire realistically be able to make more money than the owner, or those “up the chain”?
    In almost every case, it is not the original distributors of a network marketing business who earn the most money. Everyone earns based on their performance.

    Unfortunately, there are some MLM companies that derive much of their compensation from its distributors joining. However, there is nothing wrong if members choose to purchase some of the (high quality) products from their own company. Major Corporations’ customers make purchases, which profit the corporation and all the various “levels” or employees, which are arranged “pyramid-style”, yet no one is complaining about all the billions that they profit.

    Network Marketing pays the productive workers within the industry if they are willing to work hard. We are the Marketing arm of the company. However, just like most people choose an employer carefully, it is also important for those who wish to be part of a Network Marketing company as a distributor to choose wisely.

    Not all companies offer a win-win for everyone. That is why I did due diligence before I chose the company that I’m with. In the first 70 days since launch, over 100,000 members joined. (See article posted on this site on Dec 21, 2012) You can Click on my Name above if you would like to Check It Out.

    In my opinion, for a company to be sustainable over the long run, it must have a product that provides excellent value both to its Distributors and its customers. Ideally, nearly all of the earnings should come from a tangible product or service, preferably one that we would normally consume. Of course, if the Value is exceptional it will be extremely popular, which is the case in my business.

  5. If you pick a good network marketing company, like Solavei , you get a good product and the chance to make a significant income. As some have said many just join network marketing companies for a good value but you must do your do diligence when you pick a company. There are those companies that make the rest look bad. I am not a fan of fees but how many people pay to be in Sams Club? Network marketing is the same but you have the opportunity to make money too.

  6. Has anyone thought about bringing and Industry wide joint lawsuit against Mr Ackman, for his one man hate campaign against our great Industry of Network Marketing? He is a dangerous self serving fool and needs to be stopped before he destroys the livelihoods, hopes and dreams of millions. Without the Direct Selling Industry the world would fall apart. Ackman lay off, you are barking up the wrong tree.

  7. I agree with you john v!
    In the meantime I want to add that the workers are slaves of true pyramidal chain.
    Who makes more money in the corporate wave? Employer or employee? Unfortunately people are taught from childhood to submit to their corporate bosses and live paycheck after paycheck. Mlm has grown here in Brazil, however each person must be responsible for its success or failure.
    … is very important to know how to choose the person who will guide you to success and the company has to have a suite of related factors. Product, Plan conpensação and experienced executives dedicated to your growth.
    This industry is one that can lead anyone to levels of high gains with low investment. What’s the risk you run?

    Concordo com os senhor john v!
    Entre-tanto quero acrescentar que os trabalhadores estão sendo escravos da verdadeira cadeia piramidal.
    Quem ganha mais dinheiro na onda corporativa? Patrão ou empregado? Infelizmente as pessoas são ensinadas desde criança a submeterem aos seus chefes corporativo e viverem de salário após salário. O MMN tem crescido aqui no Brasil, porem cada pessoa tem que ser responsável por seu sucesso ou insucesso.
    Vale lembrar!
    … é muito importante saber escolher a pessoa que vai guia-lo para o sucesso e a empresa tem que ter um conjuto de fatores. Produto, Plano de conpensação, e executivos experiente dedicado ao seu crescimento.
    Essa industria é única que pode levar qualquer pessoa a patamares de ganhos altos com investimento baixo. Qual o risco você corre?

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