Herbalife Under Fire from California Congresswoman

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U.S. Representative Linda Sanchez has sent a letter to the Federal Trade Commission (FTC) requesting that the agency begin an investigation into allegations that Herbalife Ltd. (NYSE: HLF) is a pyramid scheme. The allegations were first made by William Ackman and his Pershing Square hedge fund.

The Los Angeles Times cites Sanchez’s letter of June 5:

As I have learned more about this issue from my constituents and from outside groups, I believe it is the Federal Trade Commission’s responsibility to examine these allegations.

She further noted that she is “troubled that [Herbalife] may be harming consumers” with its multilevel marketing model, and said that Herbalife is victimizing “our country’s most vulnerable populations.” Herbalife estimates that about 60% of its U.S. sales are made to Latinos through its network of independent distributors.

Sanchez is just the latest entrant to line up with Ackman in his allegations against Herbalife. The National Consumers League sided with Ackman in March. If the FTC does decide to launch an investigation into the claims the Herbalife is a pyramid scheme, Ackman’s $1 billion short position in the company will pay off handsomely.

Herbalife has denied the allegations in Sanchez’s letter, just as they have denied all other allegations by Ackman and other critics. Activist investor Carl Icahn has sided with Herbalife in the dispute and was granted two seats on the company’s board after nabbing a stake of around 13% in the company.

Herbalife’s shares traded up 3.1% in the late morning, at $48.34 in a 52-week range of $24.24 to $56.39.

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