BOSTON (Reuters) - The Federal Trade
Commission on Friday refused to tip its hand on how it may be react
to allegations that Herbalife is a fraud, but said it is taking a
lawmaker's concerns about the company seriously and underscored its
record of shutting down pyramid schemes.
Billionaire investor William Ackman put a spotlight on the company
when he made a $1 billion bet more than a year ago that the
nutrition and weight loss firm is running a pyramid scheme and will
go bust under regulatory scrutiny. So far, the bet has cost him
hundreds of millions of dollars in paper losses as Herbalife's share
price has climbed and no regulator has publicly disclosed its
In a letter sent to U.S. Senator Edward Markey, Edith Ramirez, the
regulator's chairwoman, said various factors, including how
consumers are affected, help determine whether the Commission acts.
But rules prevent her from telling Markey, or anyone else, what her
agency is doing or thinking.
"With respect to the allegations against Herbalife, Ltd., a number
of statutory provisions and the Commission Rules of Practice prevent
me from discussing what action, if any, the Commission may take in
any particular situation," her letter said.
Herbalife shares closed at $66.60 on Friday, down 38 cents, or 0.57
The company vehemently denies claims that it runs a pyramid scheme
or that its distributors earn more for attracting new members than
for selling its products to the public.
Last month Markey, a Massachusetts Democrat, waded into the fight
when he publicly asked two regulators, the FTC and the Securities
and Exchange Commission, plus the company itself to answer some
basic questions about how the business works. He cited complaints by
constituents who said they had lost money after joining Herbalife as
Ramirez sent her agency's letter to Markey on the day the lawmaker
had set as a deadline for a response. "I can assure you, however,
that the information you provided and the concerns you expressed are
being carefully considered," she wrote. Markey said he was reviewing
Herbalife responded last week and said that Markey was satisfied
with its explanations of how it makes money.
Ramirez also urged consumers to come forward with their own
experiences about having joined Herbalife's multi-level-marketing
plan and wrote in detail about the regulators' record of putting an
end to pyramid schemes.
Ackman has been highlighting top Herbalife distributors' claims of
making money quickly, which he says are untrue.
The battle over Herbalife's future has taken on a fevered pitch as
civil rights groups have echoed Ackman's claims that Herbalife
distributors have lied about how easily and quickly people can make
money by joining.
But the company, whose stock price has climbed 81 percent in the
last 52 weeks, has prominent supporters as well, including Wall
Street titans Carl Icahn and William Stiritz, who have taken big
stakes in Herbalife.
Earlier on Friday Ackman said he would next month lay out evidence
to support his claims that Herbalife is breaking the law in China,
one of its fastest-growing markets.
Herbalife called the claim baseless and said the timing of Ackman's
latest broadside was suspect. "We are confident in our consumption
based business model in China," a company spokesman said, adding:
"It is no accident that this attack comes on the final trading day
of the month."
Although Herbalife's stock gains have weighed on returns at Ackman's
$12 billion Pershing Square Capital Management, his hedge fund
gained 4 percent last month and was up again this month, a person
familiar with the returns said.
(Reporting by Svea Herbst-Bayliss;
Editing by Richard Valdmanis, David Gregorio and Dan Grebler)