Twitter is often a playground for speculation, and it’s no different today as Herbalife Ltd. (NYSE:HLF) bears look for reasons to continue shunning the stock. Officials arrested Amway India CEO William Scott Pinckney on Monday on a complaint that he had violated pyramid scheme laws in India.
Amway executive arrested
A spokesperson for Amway told The Wall Street Journal that neither the company itself nor Pinckney have done anything wrong. The spokesperson said it was a misunderstanding with Indian officials, who did not have a full understanding of how the company worked. Yoginder Singh reportedly said that officials in India “confuse direct selling with these other” things and that officials think they are “doing money circulation.”
The Times of India reports that a district court ordered Pinckney to be held until June 7. Police booked the executive under the Prize Chits and Money Circulation Schemes Act. Officials also said he faces charges of “cheating as well as extortion under relevant sections of the Indian Penal Code.” The Indian court rejected a petition for bail, and attorneys for both sides will begin making their cases starting tomorrow.
The Amway spokesperson also told The Times of India that Pinckney’s arrest was “unwarranted” and that the allegations “are frivolous and gives [sic] a misleading impression about our business.”
The cost of doing business in India
Multi-level marketing companies like Herbalife Ltd. (NYSE:HLF), Nu Skin Enterprises, Inc. (NYSE:NUS) and Amway have been facing increasing scrutiny, both in the U.S. and abroad. China has posted a problem for them, and now it appears like India will as well. Often Indian officials file criminal charges rather than civil ones against executives for the practices of their businesses.
Herbalife bears draw conclusions
Meanwhile a number of tweets from various Twitter users suggest that the Amway arrest will affect Herbalife Ltd. (NYSE:HLF) and Nu Skin Enterprises, Inc. (NYSE:NUS). However, Herbalife investors seem unperturbed by the news, as shares rose by about 1% in afternoon trading today. Nu Skin stock declined by less than 1%.
Interestingly enough, one analyst said back in January that Herbalife Ltd. (NYSE:HLF) is more like Amway than like Nu Skin. If that’s true, then the company’s Indian operations could be in jeopardy too if officials there target it as well. The point of that report was to suggest that the selloff in Herbalife due to the Chinese investigation into Nu Skin Enterprises, Inc. (NYSE:NUS) was overdone. So if this analyst is right, it makes sense that investors are questioning whether Indian officials will target Herbalife next.
The tweets which draw connections between Amway and Herbalife Ltd. (NYSE:HLF) also suggest that they’re pyramid schemes, with one Twitter user saying, “the pyramid-scheme business” took another hit due to the Amway arrest.
— eddy (@edtheped) May 27, 2014