In the past, Herbalife Ltd. (NYSE:HLF) has faced the same problem competitor Nu Skin Enterprises, Inc. (NYSE:NUS) faced this month. However, the results have been quite different, according to the New York Post‘s Michelle Celarier.
Shares of Nu Skin plummeted after the company was attacked last week, and Herbalife was affected to a smaller degree because both companies use multi-level marketing business models. Today Herbalife Ltd. (NYSE:HLF) shares are getting pummeled even more though, falling as much as 9% after the report in the New York Post came out.
Herbalife targeted in the past
According to the report, First Financial Daily, also referred to as China’s Business News, investigated Herbalife Ltd. (NYSE:HLF) last year, suggesting that it wasn’t operating in line with China’s MLM laws and that it might be a pyramid scheme. The paper published that article back in August, but it didn’t get much attention. However, when the People’s Daily published the report about Nu Skin Enterprises, Inc. (NYSE:NUS) earlier this month, the story spread like wildfire.
Chinese officials launched their own investigation into Nu Skin Enterprises, Inc. (NYSE:NUS) after that report, and then the company said it was probing its own Chinese operations. At this point though, Chinese officials have not said that they are investigating Herbalife Ltd. (NYSE:HLF).
Calls for an Herbalife probe renewed in the U.S.
On Thursday, U.S. Sen. Ed Markey called for U.S. regulators to investigate Herbalife Ltd. (NYSE:HLF) as a possible pyramid scheme. He said his constituents reported spending their life’s savings on products and felt forced into recruiting their family members to be distributors. The senator also sent a letter to Herbalife management asking for a full explanation of the company’s business model. Herbalife responded by simply saying that they look forward to introducing their company to him and addressing his concerns.
In general, companies are usually considered to be pyramid schemes if most of their sales are to their own distributors rather than to people outside their network. Herbalife Ltd. (NYSE:HLF) continues to say that it isn’t a pyramid scheme. The company has been battling the allegation since December 2012 when Bill Ackman accused it of being one. He then turned his attention more specifically to the company’s Chinese operations after the Chinese media published their investigation of Nu Skin Enterprises, Inc. (NYSE:NUS).