The battle to bring down Herbalife Ltd. (NYSE:HLF) just got new life, but this time activist hedge fund manager Bill Ackman wasn’t directly involved.
Lawsuit claims Herbalife failed to disclose risk
A group of investors have filed a class action lawsuit against the nutritional supplemental company for its sales practices. The investor suit, filed in Los Angeles federal district court, claims the company failed to disclose its widely-known multilevel sales operation was a “pyramid scheme” and the company was under investigation by the FBI. The suit, filed by investor Abdul Awad, seeks class action status to represent all investors who bought Herbalife Ltd. (NYSE:HLF) securities between May 4, 2010 and April 11, 2014.
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Lawsuit without apparent Ackman involvement
This is the first investor lawsuit since Pershing Square hedge fund manager Ackman loudly revealed his $1 billion short position against Herbalife Ltd. (NYSE:HLF), then engaged in a media and political lobbying campaign to expose what he considers unethical sales tactics. Ironic given that Ackman’s aggressive activist strategy, featuring political lobbyists goading regulators to attack Herbalife, has been questioned as unethical.
Herbalife responds, calls Ackman’s investment a $1 billion reckless bet
“The complaint filed today is without merit and we intend to vigorously defend the case. These unfounded claims, styled as a securities suit, are no more than a recitation of ill-informed allegations about the company’s business model previously made by a hedge fund manager orchestrating a campaign against our company in support of his $1 billion reckless bet. We are confident in our products and in our compliance with all applicable laws,” said Herbalife Ltd. (NYSE:HLF) spokesman Julian Cacchioli.
In addition to the FBI, the Federal Trade Commission is also investigating Herbalife Ltd. (NYSE:HLF) along with potential action from the New York Attorney General.
ValueWalk had previously reported on Ackman’s political lobbying, which a former SEC Chairman said had “crossed a line,” along with recent campaign contributions to the New York State Attorney General’s office that is also perusing Herbalife. Herbalife had recently countered Ackman’s aggressive lobbying effort, but it could be a case of too little, too late in terms of acquiring political influence.