Illinois Investigates Herbalife As Federal, State Probes Grow

[April 18, 2014]  By Svea Herbst-Bayliss

BOSTON (Reuters) — Illinois Attorney General Lisa Madigan's office said on Thursday it is investigating Herbalife Ltd, joining other state and federal probes of allegations that the weight loss and nutrition company is running a pyramid scheme.

Herbalife shares fell 0.3 percent to close at $55.10, reversing earlier gains.

Madigan's office was urged to look into the company months ago by civil rights groups, which claimed it was a pyramid scheme targeting minorities. Hedge fund manager William Ackman was the first to call Herbalife a fraud and placed a $1 billion bet against the company in 2012.

The company denies the allegations, and high-profile investors such as Carl Icahn, George Soros and Daniel Loeb have supported the company in the past by taking stakes.

Herbalife said it has more than 15,000 members and many more thousands of "satisfied customers" in Illinois. The company noted that it is confident in its business and that it complies with appropriate laws and regulations.

"We look forward to working with the Illinois Attorney General's office to resolve the consumer complaints it has received," it said in a statement.

Madigan's office joins the Federal Trade Commission, Federal Bureau of Investigation and New York State Attorney General Eric Schneiderman in mounting a probe.

A pyramid scheme typically pays its members more to sign on more recruits than for selling a product or service to retail customers.

The FBI has reached out to former Herbalife distributors and is probing their business documents, according to sources.

Carl Icahn is Herbalife's biggest investor and was recently promised three more board seats, paving the way for him to eventually control five seats on the 13-person board.

(Reporting by Svea Herbst-Bayliss; editing by Richard Valdmanis, Steve Orlofsky and Richard Chang)

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