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The Jig Is Up: Federal Trade Commission Opens Investigation Into Pyramid Scheme Diet Company Herbalife

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Federal Trade Commission Opens Investigation Into Herbalife

Via USA Today reports:

Herbalife shares sank as much as 12% in afternoon trading after the multi-level marketing company said it is under investigation by the Federal Trade Commission.

Shares were up $2.91 (4.5%) to $68.30 before trading was halted at 1:15. Trading in Herbalife shares opened 30 minutes later.

Herbalife said it has received a “civil investigative demand” from the FTC.

“Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace, and will cooperate fully with the FTC,” the company said in a statement. “We are confident that Herbalife is in compliance with all applicable laws and regulations.”

The company’s business plan has been criticized for months by Pershing Square hedge fund investor Bill Ackman, who made a $1 billion bet on the stock’s collapse.

In a Tuesday webcast, Ackman repeatedly called Herbalife a pyramid scheme and charged that the company was violating Chinese labor laws. Herbalife denied Ackman’s accusations in a statement Tuesday.

Ackman’s efforts to bash Herbalife has drawn criticism and protracted exchanges from activist investor Carl Icahn, who amassed a 13% stake in the company last year. Icahn has said Herbalife is undervalued.

The nutrition products company had 2013 sales of $4.8 billion, marketing energy and fitness snacks, drinks and supplements in over 90 countries.

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