Herbalife Hit by New York Probe Today, but Who Else Tomorrow?

Companies and Brands

Published: April 15, 2014 11:05 am

Source: squirrel83, via Wikimedia Commons

Herbalife Ltd. (NYSE: HLF) is caught between a rock and a hard place. After news broke this weekend that the company’s business model is being probed by U.S. prosecutors and by the Federal Bureau of Investigations, news hit in the past 24 hours that now New York State is investigating the company.

As you can imagine, another investigation is translating to another day of selling off in the stock market. The new investigation news reportedly is about whether Herbalife is a pyramid scheme.

A takeaway needs to be drawn from all the investigations and accusations by now. If you want to invest in Herbalife, you had better understand that many investigations and probes are already likely under way or coming soon that have not yet been announced. Another takeaway is that you should just assume by now that EVERY state and regulatory body is looking into Herbalife.

To show just how bad this is for shares on Tuesday, the stock price was down by almost 4% at $51.70 after about 90 minutes of trading. What is odd about this drop is that it is happening on light trading volume — only 1.35 million shares had traded, versus an average day’s volume of 3.84 million shares.

Herbalife shares have traded in a 52-week range of $34.72 to $83.51, and this company is still worth some $5.25 billion in market cap.

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