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.
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.
