The Securities and Exchange Commission has launched an insider trading investigation into trades of Herbalife Ltd. (NYSE:HLF) shares by billionaire investor George Soros. That’s according to a report from Michelle Celarier of the New York Post.
SEC questions pyramid scheme expert about Herbalife trades
Today Celarier reports that a lawyer for the SEC has gotten into contact with at least one person who spoke with Paul Sohn. He’s the Soros portfolio manager who purchased Herbalife Ltd. (NYSE:HLF) shares for the firm and who hedge fund manager Bill Ackman claims tipped off other hedge fund managers about the firm’s plans to buy them.
According to the New York Post, the lawyer questioned College of New Jersey dean Bill Keep, who is a pyramid scheme expert. The lawyer specifically asked about Keep’s meeting with Sohn on June 26. Keep is also connected with the Federal Trade Commission, and he would not provide details on his meeting with the SEC lawyer.
Ackman complained about Soros’ Herbalife trades
Ackman has a $1 billion short on Herbalife Ltd (NYSE:HLF) and called the company an illegal pyramid scheme late last year. He originally accused Soros Fund Management of insider trading in connection with its purchase of Herbalife shares earlier this month.
According to Ackman, Sohn told portfolio managers at other hedge funds about the firm’s intention to buy shares of Herbalife Ltd (NYSE:HLF). He claims that Sohn said the firm would acquire an almost 5 percent stake in the nutritional supplements company. Not long after Soros’ announcement, Perry Capital also took a fairly large stake in Herbalife.
How likely is it that the FTC will investigate Herbalife?
Sohn’s meeting with Keep was apparently aimed at learning how likely it would be that the FTC would investigate the company as a possible pyramid scheme. Keep said he told Sohn that it would be “expensive and time consuming” for the agency to investigate Herbalife Ltd. (NYSE:HLF). Then about four days after Keep and Sohn met, Soros had acquired a 4.9 percent stake in Herbalife Ltd. (NYSE:HLF), making it the firm’s third largest position.
Since the meeting with Sohn, Keep had said it would be unlikely that the FTC would investigate Herbalife. He said the agency would be more likely to revise an advisory letter written in in 2004. He believes that letter has been misinterpreted, thus causing confusion about exactly what a pyramid scheme is.
However, Keep changed his mind after Ackman’s second-quarter investor letter in which he said he had made “material” progress with regulators on his claims that Herbalife Ltd. (NYSE:HLF) is a pyramid scheme. Keep now believes that Herbalife could face some type of regulatory action