Short Interest In Herbalife Ltd. Grows As Troubles Mount

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Short Interest In Herbalife Ltd. Grows As Troubles Mount

As the FBI and Federal Trade Commission pile on the Herbalife Ltd. (NYSE:HLF) investigation with the New York and Illinois Attorneys General offices, and Herbalife stock witnesses growing short interest, another lawyer announced investigation into potential investor claims that Herbalife violated Federal securities laws.

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Short stock interest increase

In March, shares of Herbalife Ltd. (NYSE:HLF) were subject to short interest growth of 13.4%, totaling 25,013,446 shares betting the stock will head lower.  This stands in contrast to short interest of 22,058,820 according to Analyst Ratings.net reports.

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The short interest comes as a number of firms recently downgraded their ratings, as reported in ValueWalk. In late March, Zacks maintained a price target of $64.20 after downgrading the stock from neutral to ourperform. Canaccord Genuity cut their price target from $87 to $73, moving their recommendation from a Buy to a Hold rating while Barclays had raised their price target to $94 in January.

Investigative overload

It’s hard to keep track of all the government organizations investigating Herbalife Ltd. (NYSE:HLF). The list includes the New York and Illinois Attorney General’s office, as well as investigations said to be underway from the FBI, SEC and FTC.

The investigation into Herbalife Ltd. (NYSE:HLF) is the center of a war of activist hedge fund titans Carl Icahn, who is long the shares and has publicly argued with fellow activist fund manager Bill Ackman, who is short.  As previously reported in ValueWalk, Ackman, head of hedge fund Pershing Square Capital which has a $1 billion bet against Herbalife Ltd., has engaged in a rather public battle to talk the price of the stock down.  He has compared Herbalife Ltd. (NYSE:HLF) to a pyramid scheme because distributors recruit additional distributors who recruit additional distributors, creating an ever-lasting commission trail.  One complaint is that Herbalife generates more revenue selling to distributors than it does selling to customers.

New civil action

The investigation by Pennsylvania lawyer Howard Smith is related to allegations that the company’s distributors generate revenue by recruiting other distributors rather than selling Herbalife’s diet and nutritional products to the general public, and that the company engaged in deceptive trade practices and unduly pressured its Members to purchase more products for resale.  He is seeking investors who purchased Herbalife Ltd. (NYSE:HLF) stock from May 4, 2010 to April 11, 2014.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com
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4 COMMENTS

  1. The main lawsuit issue was related to some distributors accusing P&G of being a satanic cult. Amway showed it wasn’t the company that was at fault, but some distributors. The distributors ended up paying P&G millions of dollars, just google “Procter & Gamble wins $19 million lawsuit over Satanism rumors,” so the RICO charge was NEVER put in front of a jury. Amway knows they would be found to be running an illegal pyramid (lack of retail sales, just like Herbalife) and RICO fraud (just like Herbalife’s “lead generation” programs), so it’d be nice if you informed your brain of the facts. If you have PROOF of P&G paying Amway’s legal fees and costs, show the link. Or, you can continue with lies, half-truths, misinformation, etc.

  2. tex2,
    “in 1998,
    Procter and Gamble was suing Amway in Texas, including for violations of
    RICO, alleging it was a sophisticated Pyramid scheme, and they hired a
    RICO expert to make their case.”

    It’d be nice if you informed
    the readers that P&G’s RICO case against Amway based on pyramid
    scheme allegations was dismissed and P&G was ordered to pay Amway’s
    legal fees and costs. The dismissal also was affirmed by the 5th
    Circuit court of appeals. Or, you can continue with half-truths,
    misinformation, etc.

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