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On Thursday of the past week, I reported on news from U.S. Senator Ed Markey calling for an investigation, on behalf of his constituency, into Herbalife (NYSE:HLF) and its business practices. The stock was clipped $8 on Thursday, and the pain continued into the weekend as it was off another $5 to close at $60.06 amidst a broad market sell-off.

(source - Yahoo! Finance)

Bulls were quick to argue that the act from Markey came as a result of inappropriate campaign contributions, but that theory has since been refuted by several media outlets. Additionally, it had been reported that Herbalife spent just about ten times more in lobbying for 2013 than Ackman's Pershing Square:

Herbalife also outspent its foe, Ackman's Pershing Square, almost tenfold. Pershing Square, which has a $1 billion short bet on Herbalife, spent $138,000 lobbying this year.

With that out of the way, Herbalife pushed into Friday showing signs of life and recovering some of its losses from Thursday when the company responded to the Senator telling him that they look forward to introducing the business to him.

No sooner did the stock start a bit of an ascent than in the middle of a broad macro market sell-off, it was reported that Herbalife - as well as Nu Skin - could potentially be the subject for investigation in China.

The New York Post reported:

Nu Skin, the Utah-based purveyor of anti-aging skin-care products whose shares were crushed earlier this month after a news report in China said the government there was looking into whether it is violating anti-pyramid laws, isn't the only US multi-level marketer that could feel the regulatory heat.

It turns out that Herbalife, which sells protein shakes and other nutritional supplements through a multi-level marketing model similar to Nu Skin's, has also been targeted as a pyramid in the Chinese media, The Post has learned.

An investigative report in First Financial Daily, also known as China's Business News, said "suspicion has been brought up" that Herbalife is not operating in accordance with China's laws prohibiting multi-level marketing and therefore may be a pyramid scheme.

I also noted in my previous article an influx of put buying into Herbalife that took place on January 9th and 10th - 45,000 contracts that represent 4.5 million Herbalife shares that someone is betting against.

At the end of last week's chaotic trading, we get even more information that put option buying has accelerated again. It was reported by the NY Times:

On Jan. 16, a total of 49,906 put options on Herbalife traded, the most since Feb. 15, 2013, when 148,393 put options traded, the data show. (That was the day Carl C. Icahn, a major rival of Mr. Ackman's, officially announced that he had bought a big stake in the company.)

Then, last Friday, 69,668 put options traded.

There was also an unusually high amount of options trading activity a week earlier, on Jan. 10. At that point, news articles were saying that Herbalife shares had reached a 52-week high, possibly inspiring traders to get out of their bearish positions.

And then there was this curious bit, posted on theflyonthewall.com with regards to Dan Loeb's stake - which I thought had already been liquidated. There was a 13G filed at the end of the week last week, which you can view here - and it was reported by theflyonthewall.com:

(click to enlarge)

I'm not sure what that means, but I remember the "long term" Herbalife investment Loeb took - which lasted about a total of 16 days, earlier in 2013. And then, the confusion regarding a potential SEC inquiry into Third Point, as reported by the NY Post:

Just weeks after Ackman famously declared Herbalife a pyramid scheme, Loeb took an 8.6 percent stake in the company, a regulatory filing and a letter posted on the Third Point web site revealed.

In the letter - released the day before Herbalife's investor meeting to rebut Ackman - Loeb called Ackman's views preposterous and said Herbalife was a "compelling long-term investment." Third Point has since removed the letter from its website.

It is unclear what the SEC inquiry was about or who or what the subject of the inquiry was. However, no enforcement action was taken against Loeb or Third Point.

But the inquiry appears to have been enough to shake Loeb and may have moved him to sell his Herbalife stake.

It "totally freaked [Loeb] out," one of the pals, whom Loeb has confided in for years, said of the SEC inquiry.

"Neither Third Point nor Daniel Loeb has been a subject of an SEC inquiry regarding Herbalife," a Third Point spokesperson said Tuesday night.

Regardless, the ominous signs for Herbalife continue to pile up. If the much talked about buyback or LBO doesn't get itself on the table soon, bulls are going to start running out of reasons to convince themselves to hold.

Herbalife remains a risk of total loss in the case of regulator intervention, and I remain long-term bearish on the company whether it stays public or not.

Source: Herbalife Sell Signs Keep Piling Up

Additional disclosure: I am holding the equity short and am long puts.