Shares of nutrition company Herbalife Ltd. (NYSE: HLF) tumbled as much as 13% Thursday after Sen. Edward Markey (D-Mass.) asked the government to look into the company’s business practices and whether the company is operating as a pyramid scheme.
In a press release, Markey said he had heard serious complaints about “improper pressure and financial hardship” related to the company. Herbalife sells nutritional and weight-loss products through individual distributors. It promises its sellers significant monetary compensation in the form of additional bonuses and royalties if they recruit new sellers and establish their own network of product distributors.
In one news report, a Norton, Mass., woman claimed she had lost $130,000 in Herbalife, including all the money in her 401(k) plan, her entire retirement savings. It was not clear if she had invested in the stock or spent all the money as an Herbalife distributor.
Herbalife has attracted tremendous attention in recent years. In 2012, activist investor Bill Ackman of Pershing Square came out with a scathing presentation on the company, accusing it of being a pyramid scheme.
Ackman has spent millions shorting the stock. After initial declines, the stock rallied, helped by the backing of such billionaire heavyweights Carl Icahn, George Soros and Dan Loeb. Icahn and Ackman have waged a bitter war of words over the issue.
The shares soared nearly 139% in 2013. They peaked at $82.49 on January 10. On Thursday, the shares were at $64.27, down $9.26 or 12.6%, and down 22.1% from the peak.