The FBI has launched a criminal investigation of Herbalife, a company that sells weight loss and nutritional products through distributors. Herbalife is basically a multi-level marketing company, and in fact has been accused in the past of being a pyramid scheme. Hedge fund manager, Bill Ackman launched an attack against Herbalife in December of 2012, claiming that the company is nothing but a pyramid scheme where only the minority of people “at the top of the pyramid” make a lot of money. Herbalife countered Ackman’s attack by noting that the majority of its sales people join Herbalife to attain discounts on the company’s products, of which they personally consume.
According to a report by Value Walk, the Federal Trade Commission has launched a probe into the business practices of Herbalife, and ABC’s 20/20 is gearing up to follow suit. Charlie Gasparino, Fox Business News journalist, says, “Company officials at Herbalife are bracing for a 20/20 expose on the company. 20/20 is looking at how Herbalife recruits its distributors, and that is at the heart of both Ackman’s critique of the company that it’s a pyramid scheme and the Federal Trade Commission investigation.”
Gasparino notes that he is not accusing Herbalife of any wrongdoing, and it’s possible the 20/20 Herbalife story may not end up airing. He has heard, however, that people at Herbalife are aware of a possible whistleblower who may have worked behind the scenes, and is cooperating with the investigation.
FBI officials are not forthcoming regarding their probe into Herbalife. Christos Sinos, an FBI special agent, did not deny that an investigation is in play, and said only that the FBI is not commenting at this point in time.
The Los Angeles Times reports that Herbalife is blissfully unaware of the impending FBI investigation. A statement from Herbalife said, “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 our public disclosure obligations very seriously. Herbalife does not intend to make any additional comments regarding this matter unless and until there are material developments.”
Former federal prosecutor, Robert Mintz, says an FBI criminal investigation could threaten the future of Herbalife. “A criminal investigation will typically look at the conduct of individuals as well as the company, and there’s obviously the threat of jail time for an individual who may be charged and ultimately convicted.”
The Los Angeles Times also mentions that law enforcement did confirm the FBI has been looking into Herbalife for quite some time. An official, who requested to remain anonymous because the case is current, stated, “We are doing our job of getting to the bottom of this issue. And I would stress that no one is going to be under arrest imminently. Maybe no one will be arrested.”
It is hard to imagine that Herbalife really is unaware of the pending FBI case. Jeff Ifrah, a partner at Ifrah Law in Washington, D.C., states that it could be a possibility, if “the probe has not yet reached a critical stage”. Only time will tell. If the merest hint of Herbalife undergoing FBI scrutiny has the power to drop the company’s stock by 14 percent, what then will become of Herbalife if they are, in fact, exposed to a full blown FBI investigation?
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