Herbalife Ltd. (NYSE:HLF), a multilevel marketing company selling weight loss and nutrition products is confident that it will be vindicated from allegations after the Federal Trade Commission (FTC) completes its investigation.
The commission launched an investigation on the business practices of Herbalife Ltd. (NYSE:HLF) after activist investor, Bill Ackman of Pershing Square Capital Management accused that the company is operating a pyramid scheme.
A number of civil rights Latino organizations also accused the company of running “predatory business practices” and “unfairly targeting minority groups and luring them into a losing business deal.”
The Federal Bureau of Investigation (FBI) and Attorney Generals in different states are also investigating the allegations against Herbalife Ltd. (NYSE:HLF).
Herbalife confident on its business model
In a recent interview, Herbalife CFO John Desimone told Bloomberg that the management of the company respects the integrity of the investigation and will fully cooperate with regulators. According to him, they have complete faith on its members and business model.
Desimone emphasized, “We anticipate at the end of the day we will be exonerated. We will wait to say anything more until the investigation is complete.”
Pamela Jones Harbour, the newly appointed compliance chief of Herbalife Ltd. (NYSE:HLF) previously stated that she is willing to risk her reputation for the company. Harbour is a former commissioner of the FTC. She strongly believed that the company’s products are legitimate, and its management is fully committed to compliance.
“Compliance should be a part of a company’s culture, and I got that very strong sense when I was at Herbalife,” said Harbour.
Herbalife expected to strike a deal with FTC
Early this month, Fox Business Network senior correspondent Charlie Gasparino reported that the management of Herbalife Ltd. (NYSE:HLF) are certain that the FTC will not shutdown the company. However, they expect the commission to impose disciplinary actions and penalties against the company.
Tim Ramey, an analyst for Pivotal Research suggested that Herbalife Ltd. (NYSE:HLF) will strike a deal with the FTC. He also expected the company to accept a penalty or sanction for it activities in the past such as its overly aggressive claims of distributors about their income and issues on lead generation.
Meanwhile, Christine Richard, a well-known equity research recently exposed that Herbalife Ltd. (NYSE:HLF) has been using an unrealistic exchange rate to increase its sales in Venezuela.
According to her, the company has been using an exchange rate of 10.7 bolivars against the U.S. dollar since March compared to the black market rate of nearly 100 bolivars. Richard said Herbalife overestimated its sales in Venezuela amid currency devaluation.
Desimone rejected Richard’s report and described as “extremely inaccurate in many respects.” He added that the majority of other companies are using the same 10.7 bolivars exchange rate. He said “facts and circumstances” as well as accounting rules, allowed the company to do so.