HerbalifeHerbalife Ltd. (NYSE: HLF) has just sent us the following press release regarding ‘inaccurate and misleading’ news regarding the company. They are demanding a correction from the NY Post over an article which states that investors have launched a formal investigation into the company. Herbalife states that only voluntary dialogue has taken place with regulators and the company is ‘unaware’ of any other regulatory investigation. Bill Ackman’s Pershing Square has a $1 billion short bet against the company. Dan Loeb’s Third Point has recently acquired an 8.2% stake in the health company.

Jarrel Price at Height Analytics has issued several notes regarding Herbalife recently, we note them below:

Friends –


This morning the New York Post is reporting that Herbalife (HLF) is the focus of a FTC probe (here). We have documents that make us less certain what MLM is the focus of the FTC investigation noted by the Post.


The Post concludes that that there is an investigation based on redactions in a FOIA request it submitted specifically focusing on HLF. We submitted our own FOIA request for all consumer complaints and investigative records related to all publicly traded MLMs other than HLF. Our January 23, 2013 response from the FTC included the exact same stock language about withholding pages related to an investigation (don’t ask why our FOIA request omitted HLF!).


Specially, both letters say that the FTC is, “withholding some responsive pages which are exempt from disclosure under FOIA… [because it is] information obtained by the Commission in a law enforcement investigation…”


Since the Post’s letter related to HLF and our letter related to other MLMs both include the same language related to investigative records, we cannot rule out the following options:


1.       Herbalife Ltd. (NYSE: HLF) is the sole focus of the FTC’s investigation.

2.       The FTC is investigating multiple publicly traded MLMs (not just HLF).

3.       The FTC is focused some other MLM and the investigation looked at, perhaps compared the company to, other MLMs in the sector (the FTC’s investigation leading up to its lawsuit of Fortune Hi-Tech Marketing on January 28 could be an example).


So at this point, we believe it is premature to conclude there is a new investigation or what company is the focus of the FTC’s inquiry.

Update #3

In addition to the reason(s) that consumer complaints were withheld by the FTC, there are also concerns about the NYPost’s description of complaints containing reference to “pending law enforcement action.” We believe this is likely another example of boilerplate language and not specific reference to an investigation.


Two consumer complaints against Herbalife (HLF) were collected and then forwarded to the FTC by The Internet Crime Complaint Center (IC3) which is a partnership between the Federal Bureau of Investigation (FBI) and the National White Collar Crime Center (NW3C). IC3 also forwarded a number of complaints against other MLMs (which we received in our separate FOIA request).

Two key observations:

1.       All of the IC3 complaints contain the same disclaimer, “NOTE: To prevent interference with pending law enforcement action, prior to any investigative action, please contact the IC3…”

2.       According to the FBI, the above note is likely boilerplate language because IC3 serves as a clearinghouse of complaints about illegal internet activity and they want to be kept in the loop to prevent duplicative investigations at multiple agencies (IC3 may have forwarded these complaints to multiple agencies). It is unlikely to actually suggest an active investigation at IC3, FBI or NW3C.


Our latest update…


Conversations this morning continue to support our thesis that it is premature to conclude, as the NYPost did, that HLF is the focus of a FTC investigation. At this point, it remains unclear to us whether the stock language cited by theNYPost in the FTC’s response to its Herbalife FOIA request is indicative of: 1) one or more FTC investigation(s); 2) an inquiry by some other federal agency; or, 3) other federal agencies simply asking for confidentiality when sharing complaints with the FTC.


1.       The FTC letter cited by the NYPost was related to consumer complaints against HLF. We understand that consumer complaints are rarely withheld due to an FTC investigation because the FTC does not address specific complaints in their investigations.

2.       The FTC sometimes withholds consumer complaints submitted by other government agencies when they request confidentiality.

a.       Section 21(f) of the FTC Act allows the FTC to, “protect information provided by foreign enforcers from public disclosure if confidentiality is a condition for providing it.”


FTC Complaints by the Numbers:

As we have previously reported, the FTC maintains a database of U.S. consumer complaints received by the FTC and other data contributors (such as other law enforcement agencies, Better Business Bureaus, etc). Of the 1.8 million complaints logged in 2011, ~36,000 (~2%) were categorized as “business opportunities, employment agencies and work at home plans.” By comparison, Identity Theft, the FTC’s largest category, received ~279,000 complaints. There were ~1240 consumer complaints on publicly traded MLMs over the last five years, ending on January 23, 2013. The breakdown for those is listed below.


  • Primerica – 471
  • Avon – 390
  • Herbalife – 192
  • Medifast – 88
  • NuSkin – 51
  • USANA – 19
  • Mannatech – 19
  • Reliv – 5
  • Natural Health Trends – 3
  • Tupperware – 1
  • Blyth – 1


“Withholding” Language

The following is standard language issued by the FTC in response to FOIA requests for consumer complaints: “I am withholding some responsive pages which are except from disclosure under FOIA Exemption 3, 5 USC§552(b)(3), because they are exempt from disclosure by another statute. Specifically, Section 21(f) of the FTC Act provides that information obtained by the Commission in a law enforcement investigation, whether through a compulsory process, or voluntarily in lieu of such process, is exempt from disclosure under the FOIA.”


We received such language in our FOIA response letter when we received copies of consumer complaints against Primerica, Avon, Medifast, NuSkin, USANA, Mannatech, Reliv, Natural Health Trends, Tupperware and Blyth.


Section 21(f) allows FTC to exclude information from release during a FOIA request that is from a law enforcement agency or other government ageny; if the source of the information requested confidentiality as a condition for its provision; or from consumer complaints given to the Commissions from a reporting mechanism sponsored, in part, by other law enforcement or government agencies.


In other words, FTC can withhold consumer complaints from release when part of the FTC’s or another government agencies investigative record, or if confidentiality is requested by the complainant. However, it is important to note that being part of an investigative record does not mean that company was the target of the investigation; it also does not mean that an law enforcement action will actually occur as part of any investigation.

The full press release can be found below:



Los Angeles, CA – February 4, 2013  Herbalife (NYSE: HLF) today issued the following statement following misleading and inaccurate information in the marketplace this morning:


Other than the voluntary dialogue with regulators, which we communicated on our January investor day, we are unaware of any other regulatory interest and/or investigation. We are demanding a correction from the NY Post.


Since its founding in 1980, Herbalife has positively impacted the lives and health of consumers. For a direct selling company of our size, we have had a relatively low number of complaints to the FTC. However, we take every one of them seriously

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