The Federal Trade Commission (FTC) today launched an investigation in what it believes to be an illegal pyramid scheme. The company involved is Fortune Hi-Tech Marketing, a multi-level marketing company that has been in the FTC’s sights for some time now.
When the FTC announced the pending press conference without naming the object of its action, shares of Herbalife Ltd. (NYSE: HLF) and Nu Skin Enterprises Inc. (NYSE: NUS) dipped about 8% and 6%, respectively. Both Herbalife and Nu Skin have both been charged in the press — and in Herbalife’s case, high-profile hedge fund manager William Ackman — with being pyramid schemes.
The interesting thing about today’s FTC announcement is the collateral damage to Herbalife and Nu Skin. Imagine what an FTC decision to launch an investigation into Herbalife would mean to Ackman and his short position in the company? And Ackman doesn’t even have to care whether Herbalife is a pyramid scheme or not. Must be nice to have a bazooka in your pocket.