The U.S. Federal Trade Commission is investigating Herbalife Ltd., according to a report by Bloomberg News, to answer the question at the heart of Bill Ackman’s $1 billion bet against the company: Do people buy its products for their own use?
As of March 2014, Herbalife has been under investigation by the U.S. Federal Trade Commission. Herbalife International is a multi-level marketing company that sells nutrition, weight management and skin-care products. The company has been criticized by, among others, hedge fund manager Bill Ackman of Pershing Square Capital, who claimed that Herbalife operates a “sophisticated pyramid scheme.”
Herbalife products are not sold in traditional stores, and the company’s distributors instead sell directly to family, friends, neighbors and strangers. They buy products at a discount and sell them at a markup.
According to Bloomberg News, while Herbalife has said it is cooperating with the FTC probe and welcomes the opportunity to clear up “misinformation in the market,” the Cayman Islands-based company has reported that it has no knowledge of an FBI investigation. Illinois Attorney General Lisa Madigan is examining consumer complaints against the company.
According to ABC News, a Staten Island, N.Y., Herbalife distributor told a potential customer who was actually an ABC News reporter wearing a hidden camera — that a woman with a brain tumor became symptom free after starting on Herbalife products. “She used to shake like this because she lost control of her motor skills to the tumor and she said part of her cerebellum was deteriorated,” he said. “If you see her now, she’s like one of us here…Whatever it is that the product did, it helped her a lot.”
A former FTC lawyer now at Hudson Cook LLP in Washington, Joel Winston, said in an interview that “It’s going to be a long, drawn-out investigation. ”According to Bloomberg News Winston said that, “They have to get all of these records, and what they often run into in these cases is the company doesn’t have records of retail sales.”
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