Herbalife Ltd. (HLF), Nu Skin Shares Halted, FTC Announces Probe

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Herbalife Ltd. (HLF), Nu Skin Shares Halted, FTC Announces Probe

A day after Herbalife Ltd. (NYSE:HLF) and Bill Ackman traded barbs yet again, the Federal Trade Commission announces that it is launching a formal inquiry into Herbalife. Trading on the company’s stock was halted at 1:18 p.m. Eastern so that the news could be announced. Officials also halted trading on Herbalife competitor Nu Skin Enterprises, Inc. (NYSE:NUS) because of the revelation about Herbalife.

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Herbalife probe officially begins

You may remember that U.S. Sen. Ed Markey sent a letter to the FTC and also the Securities and Exchange Commission recently urging that they investigate Herbalife Ltd. (NYSE:HLF). The SEC was very tight-lipped on the matter, although the FTC said they were considering his request. Now the FTC has filed a civil investigative demand against Herbalife.

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Herbalife Ltd. (NYSE:HLF) issued this statement to ValueWalk in response to the announcement about the inquiry:

“Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace, and will cooperate fully with the FTC. We are confident that Herbalife is in compliance with all applicable laws and regulations. Herbalife is a financially strong and successful company, having created meaningful value for shareholders, significant opportunities for distributors and positively impacted the lives and health of its consumers for over 34 years.”

The company said it doesn’t intend to make any more comments on the investigation “unless and until there are material developments.”

Herbalife, Nu Skin shares affected

Shares of Herbalife Ltd. (NYSE:HLF) are indicated to reopen down about 10% after trading on them was halted.  Shares of Nu Skin Enterprises, Inc. (NYSE:NUS) were halted about 11 minutes after Herbalife shares were halted because of extreme volatility, which officials believe is due to the news about the FTC’s investigation into Herbalife.

Today’s announcement from the FTC comes a day after Bill Ackman gave a presentation explaining why he believes Herbalife Ltd. (NYSE:HLF) is operating in violation of Chinese regulations governing direct sales. The nutritional supplements company maintains that it is not violating law and is not a pyramid scheme, as Ackman has claimed for over a year.

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Michelle Jones is editor-in-chief for ValueWalk.com and has been with the site since 2012. Previously, she was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Email her at Mjones@valuewalk.com.
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  1. Some facts to know about Herbalife:
    (1) It’s an illegal pyramid if there is payment for recruiting.
    (2) There is payment for recruiting if there is inventory loading because there are no significant fees to join up beyond product purchases by hopeful distributors.
    (3) Herbalife offers a very generous return policy (100%) for all unsold product.
    (4) Product returns are around 1%, extraordinarily low.

    One must conclude that product is actually being sold and that there is no payment for recruiting. Hence, it is not an illegal pyramid scheme. It may not be many peoples cup of tea but to cal it an illegal pyramid is a bit ridiculous given the facts. This is exactly the reasoning the Belgian court followed when determining that it is not an illegal pyramid in Belgium recently.

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