FTC Opens Probe Of Direct Marketer Herbalife After Pyramid Scheme Allegations

Following a year-long attack by a hedge fund manager who accuses Herbalife Ltd. of being nothing more than a pyramid scheme, the Federal Trade Commission has launched an investigation into the company’s business. Herbalife’s stock took a beating following the FTC announcement, falling 17 percent on March 12. William Ackman of Pershing Square Capital Management LP fired the first salvos in the battle in December 2012 when he spent three hours telling a Manhattan audience why he thinks the direct marketer is a pyramid scheme whose sales reps rely more for income on recruiting new reps than on selling product to the public. Herbalife has vigorously disputed Ackman's claims while posting strong earnings.