The Securities and Exchange Commission (SEC) decided to drop its case against a person accused of insider trading related to the shares of Herbalife Ltd. (NYSE:HLF), the controversial company selling weight loss products accused of running a pyramid scheme, according to a report from Maria Armental of The Wall Street Journal (H/T DealBreaker).

The SEC dismissed its insider trading charges against Jordan Peixito of Toronto because the two men who developed and passed information about Herbalife Ltd. (NYSE:HLF) are not available to give their testimony in a trial scheduled on March.

Herbalife Ltd. – SEC enforcement division did the right thing

Peixoto’s legal counsel commented that the decision of the SEC to drop the case was “a tremendous victory for the rule of law.” Attorney Derrelle M. Janey said, “There were significant legal and fact problems with this action that cried out for this dismissal, and the division of enforcement should be applauded for doing the right thing.”

The securities regulator alleged that Peixito obtained insider information regarding the plan of Bill Ackman’s Pershing Square Capital Management to announce its negative view about the Herbalife in 2012.

The SEC found that Peixito acquired put options on the shares of Herbalife on December 19, 2012. The stock price of Herbalife plummeted after Ackman called the company as the world’s best-managed pyramid scheme.

Peixito gained $47,100 from trading Herbalife’s stock based on the information he obtained from Filip Szymik, who learned about Ackman’s plan from his roommate Mariusz Adamski, a former analyst at Pershing Square Capital Management.

Szymik and Adamski returned to Poland and indicated their intention to defend their right against self-incrimination under the Fifth Amendment, if they are compelled to testify in the case.

Szymik did not trade any shares of Herbalife Ltd. (NYSE:HLF), but the SEC found that he violated the anti-fraud provisions of the securities laws and Sec rules. He agreed to pay a $47,100 in civil penalty to settle the charges against him.

Herbalife accused of making false medical claims

Meanwhile, Pershing Square Capital Management recently alleged that the distributors Herbalife Ltd. (NYSE:HLF) are “routinely making false, dangerous and illegal medical claims to potential customers.”

The distributors of the company are claiming that its products in some cases could possibly alleviate various health problems such as asthma, diabetes, hypertension, bronchitis, migraines, arthritis, weight loss, cellulitis and high cholesterol.

Herbalife Ltd. HLF Herbalife