Seeking Alpha

Herbalife -13% as U.S. senator calls for investigation

  • Herbalife (HLF -13%) plunges after Massachusetts Sen. Edward Markey calls for an investigation of the company, which has been accused of running a pyramid scheme by Bill Ackman.
  • Markey has sent letters to the SEC, the FTC and to the company itself to try to obtain more information.
Comments (75)
  • This is no surprise. It will only get worse. I hope all of the longs who personally attacked Matt and QTR keep buying.
    23 Jan, 10:40 AM Reply Like
  • ROFL!!! Love it. Thanks, Lockchris.
    23 Jan, 11:14 AM Reply Like
  • It’s funny how 2 Democrats are interested in investigating HLF. I wonder if activist investor William Ackman is a contributor to Sen. Edward Markey, and the other Democrats. Is it possible that Ackman has put contributions on the line for these Politicians to exploit HLF? HHmmm interesting pattern forming!

     

    I will be sending a complaint to the SEC and have them investigate this because I am getting tired of Activist trying to manipulate companies and their stock!

     

    Maybe you all should look into this – what a story this would be if Ackman is a contributor to their campaign!!
    23 Jan, 11:31 AM Reply Like
  • Will you complain to the SEC when the FTC shuts down the company after finding it to be a pyramid scheme? Is that market manipulation, or simply finding a company that's breaking the law and acting accordingly?
    23 Jan, 11:41 AM Reply Like
  • I believe Icahn is called an activist too!
    23 Jan, 12:14 PM Reply Like
  • First lets look into Herbalife. If they still remain in the USA then we can do as ProfessorSmart ask!
    23 Jan, 02:43 PM Reply Like
  • “ProfessorSmatt writes …”I will be sending a complaint to the SEC and have them investigate this because I am getting tired of Activist trying to manipulate companies and their stock!
    ~~~~~~~

     

    WOW! Are you sure "ProfSmatt" you really want to take that speculative and paranoid message to the SEC. That might turn out as effective as pouring gasoline on an already out of control raging fire at $HLF.

     

    But then what do I know? I’m only a …..Concerned Citizen: No position in any stock: Simply doing what WE can to expose fraud, but with an impeccable 100% track record in identifying scams; two of these characters in jail and several, otherwise successful schemes, driven into the ground.
    23 Jan, 02:46 PM Reply Like
  • You will be sending a formal complaint to the SEC? LOL!!!! I am sure it will serve as back up in case they run out of toilet paper.
    23 Jan, 04:12 PM Reply Like
  • YOU are an unforunate long who is about to have Ackman hand you a bankruptcy notice, I am short on Nu_skin news and never expected a 12% handout today. its going to zero.
    23 Jan, 06:57 PM Reply Like
  • lmao!!!!!!! I just saw your post!!
    23 Jan, 07:05 PM Reply Like
  • good question. "irregular moves in the market place" being investigated is irregular in and of itself. i would argue this could very much be seen to be the case in energy markets and will be watching this investigation very closely.

     

    http://bit.ly/1bllaeZ
    23 Jan, 08:20 PM Reply Like
  • The DOJ has a zero tolerance policy for alleged campaign violations. To get to the bottom of this apparent violation, all of Sen Markeys emails should be made public. Don't you think?
    23 Jan, 09:44 PM Reply Like
  • Hahaha they want to shut Herbalife down because it is a pyramid scheme. First get the log out of your own eye, Senator! Take a look at social security!
    23 Jan, 11:14 PM Reply Like
  • Early March 2014 will be interesting as he requested answers by then (see last lines in the letter):

     

    http://bit.ly/1jEua4P
    23 Jan, 10:47 AM Reply Like
  • oops, have to roll my puts from Feb.
    23 Jan, 11:23 AM Reply Like
  • I'm not sure if this date (Feb 28) is just his wish for a deadline, the questions are quite complex.

     

    Maybe US readers with more knowledge on the power of such requests for answers can chime in.

     

    The FTC/SEC could also just provide general answers to make the deadline (?).

     

    I think an actual investigation could take months if not years....
    23 Jan, 11:42 AM Reply Like
  • The February 28 deadline is simply his wish. HLF will likely comply (or request an extension) simply to show that they are cooperating with regulators and have nothing to hide. The difficult thing I personally think is explaining that for many of the questions, there is no answer that HLF can provide, for example, HLF can not know the profits because they do not know expenses. The expenses of a distributor working exclusively through word of mouth and not recruiting anyone will be significantly different than the expenses of someone who is printing out posters, handing out flyers, holding seminars etc.

     

    For the SEC, the Feb 28 deadline is simply a suggestion. Markey does not sit on the committee that oversees the SEC, but I suppose he could push one of his fellow Senators to call the SEC in if they fail to respond.

     

    For the FTC, it is a strong suggestion, as Markey sits on the FTC oversigh Committee.

     

    That said, the SEC and FTC simply need to acknowledge the letter, and can respond that it is their policy to not discuss any investigations or actions until thye are made public. It is very common for Regulatory agencies to respond to Congress with 3 page letters that say absolutely nothing, and I would expect the same here.

     

    Interesting, Since December 2012, it would appear that Ackman, and others employed by Pershing Square have only donated to the Democratic Party, including a $32,400 Donation from Ackman to the Democratic Senatorial Campaign Committee on April 30.
    23 Jan, 12:50 PM Reply Like
  • Thank you for posting the link to the letter. Sooooo Happy! Anyone think I have a chance of getting money returned?
    23 Jan, 02:43 PM Reply Like
  • user 6461431: "HLF will likely comply (or request an extension) simply to show that they are cooperating with regulators and have nothing to hide."

     

    Doubtful. We know that Sen. Markey's staff is working with Ackman (See: http://nyti.ms/1ehcFTk : "Mr. Ackman met with members of Mr. Markey’s staff last fall, but he has not met with the senator, a spokeswoman for Mr. Markey said."). Herbalife can't give non-public, material information to Markey and his staff.

     

    If I were Herbalife, I would point to their freshly audited financial filings with the SEC. There is no obligation to acquiesce to Ackman's "questions" even when they are copied in a letter on a US Senator's letterhead.
    23 Jan, 03:30 PM Reply Like
  • just2look,

     

    "Herbalife can't give non-public, material information to Markey and his staff."

     

    At least HLF won't have to be concerned with the issue of materiality of outside network sales data.
    23 Jan, 05:19 PM Reply Like
  • The only thing longs have to fear is fear itself.
    23 Jan, 10:51 AM Reply Like
  • No, longs have losing all of their money to fear.
    23 Jan, 11:02 AM Reply Like
  • That and Herbalife finally being officially recognized as a pyramid scheme.
    23 Jan, 02:48 PM Reply Like
  • Possible responses to the Senator's inquiry:

     

    1. Thank you for bringing this to our attention. I guess we were asleep at the wheel again. We will close them down immediately.

     

    2. We have thoroughly investigated this company and found it to be in compliance with existing regulatory standards.
    24 Jan, 10:23 AM Reply Like
  • Poor sacathanas. Poor herbs4mike. Poor powershake. HLF is definitely on sale now. A fire sale.
    23 Jan, 10:56 AM Reply Like
  • true, it's a best time to buy. When people fears you have to be greed.
    23 Jan, 02:41 PM Reply Like
  • chance to buy
    23 Jan, 10:56 AM Reply Like
  • What, the product or the stock?
    23 Jan, 02:48 PM Reply Like
  • Hmmm, I suppose that Ackman must have deposited a million or so into Markey's off-shore bank account....
    23 Jan, 11:06 AM Reply Like
  • Off-shore would be where all the HLF accounts are?
    23 Jan, 01:38 PM Reply Like
  • Perhaps, Herbalife has taken BILLIONS from people like myself.
    23 Jan, 02:43 PM Reply Like
  • More speculation! Herby's the one off shore!!!
    23 Jan, 02:48 PM Reply Like
  • Karma's a bitch, HLF.
    23 Jan, 11:14 AM Reply Like
  • Karma is wonderful, when helping others!

     

    HLF has nothing but good karma!
    23 Jan, 11:55 PM Reply Like
  • I guess it pays to lobby - good luck putting together a case.
    23 Jan, 11:29 AM Reply Like
  • That's been done many times over!!!
    23 Jan, 02:50 PM Reply Like
  • fantastic :) SEC and FTC gets another letter, now from a senator. SO WHAT? :))
    23 Jan, 11:29 AM Reply Like
  • Wait and see
    23 Jan, 02:50 PM Reply Like
  • where's the impending press release by Herbalife on how they've opened a nutrition club in Papua New Guinea?
    23 Jan, 11:30 AM Reply Like
  • I just talked to Justin Slaughter at Edward Markey's office and he admitted to me that Bill Ackman did not meet with Mr. Markey but he did meet with some of Mr. Markey's staffers. Also he said that the New York Times is aware of this. I am not sure if they have reported that but if anyone has a link, please post it here.

     

    NOW WE KNOW THE REST OF THE STORY- Per my conversation with Justin, I believe Bill Ackman is behind this.
    23 Jan, 11:34 AM Reply Like
  • Of course he's behind it. What's your point? That doesn't make HLF any less of a pyramid.
    23 Jan, 11:42 AM Reply Like
  • QUESTIONS FOR MARKEY:

     

    So why didn't Markey say anything about that meeting with Ackman and his staffers in his letter????

     

    Who provided him OR HIS STAFFERS with the questions for Herbalife in his letter???

     

    NOTE: These are detailed questions that seem to be those questions that Bill Ackman might request.

     

    Also in Mr. Markey's letter he references one family that lost $130,000 including their entire 401(K) Soooooooo-> Was the money lost in their 401(K) invested in Herbalife stock???

     

    Since Mr. Markey is asking for openness, it would be good for him to provide all of his connections, including any political contributions from Ackman too.
    23 Jan, 12:00 PM Reply Like
  • Per New York Times article: http://nyti.ms/1dScLFZ

     

    "Mr. Ackman met with members of Mr. Markey’s staff last fall, but he has not met with the senator, a spokeswoman for Mr. Markey said."

     

    MY COMMENT: Last Fall - Hmmmmmmmmmmmmm -> wasn't that just a few months ago???? What a coincidence!!!!! Staffers meet with Ackman-> Staffers ask Ackman type questions of Herbalife-> Hmmmmmmm
    23 Jan, 12:21 PM Reply Like
  • One story/investigation at a time G. Hudson.
    23 Jan, 02:43 PM Reply Like
  • You are right. Bill Ackman did meet with Senator Markey's staff and I read this in Yahoo. Here is the link
    http://nyti.ms/1hP9eY6;_type=blogs;_r=0&...

     

    It is sad the Senator is trying falling for Ackman's relentless pursuit to discredit Herbal Life. Ackman trying to make his money back one way or the other using any tactics available to him.
    23 Jan, 02:48 PM Reply Like
  • And again, does it matter who calls 911 and brings a bank robbery to the attention of police? Even if it's the local drunk,or crack head?
    23 Jan, 02:50 PM Reply Like
  • CBN: It doesn't matter who calls the police, but what does matter is when the police get to the scene of the crime, who is identified as the thief. In this case, many of the people here are accusing the thief of calling the police. It is also quite possible (although I know you disagree) that there was no robbery committed, just a person withdrawing a large sum of money from their own personal account.
    23 Jan, 09:46 PM Reply Like
  • http://1.usa.gov/1dS6WIG

     

    Excerpt from letter-

     

    Page 6 of 6 -> "Please have your staff contact Justin Slaughter or Michael Freedhoff of my staff at 202-224-2742."

     

    When I talked to him, he tried to not talk to me until he could get someone from their public relations department to be on the phone but when I pressed him for Bill Ackman's involvement, he volunteered the above information about Ackman meeting with some of Market's staffers. Also he volunteered that the New York Times had that information.
    23 Jan, 11:43 AM Reply Like
  • Good work G Hudson. This interest definitely smells here.
    23 Jan, 11:45 AM Reply Like
  • Ackman is free to write/visit a senator like any other US citizen correct?
    23 Jan, 02:44 PM Reply Like
  • sk8ter2013: "Ackman is free to write/visit a senator like any other US citizen correct?"

     

    Yes, and Markey's constituents are free to call Markey and voice their displeasure that their Senator is doing the bidding of a Wall Street hedge fund billionaire by helping him reap millions from people's investment accounts ... including Massachusetts investors, by perpetuating Ackman's unsubstantiated FUD to manipulate the stock price of Herbalife.

     

    I mean Markey literally just copied and pasted Ackman's question onto his US Senator letterhead.

     

    Why Mr. Markey are you helping a Wall Street billionaire defraud the investing public?
    23 Jan, 03:41 PM Reply Like
  • I don't see the issue. Both HLF and Ackman are spending lobbying money (HLF even much more than Ackman).
    23 Jan, 03:42 PM Reply Like
  • Wonder what Icahn is up to these days with his HLF position and all.
    23 Jan, 12:03 PM Reply Like
  • Ichan said: I have not sold a share, I believe in HLF, I think its a great model, HLF is undervalued.

     

    Ichan said he is holding on to HLF for years - http://bit.ly/1d0hxLv
    24 Jan, 12:00 AM Reply Like
  • powershake: "Ichan said he is holding on to HLF for years"

     

    You might even say "to the end of the earth"!
    24 Jan, 11:52 AM Reply Like
  • hold on -- look at the person who is filing this complaint -- Sen Markey is as liberal as they get. He is always making noise on the "economic injustice" front to all his constituents that happen to be mainly black and hispanic. Meanwhile MR ED Markey lives a very affluent lifestyle amongst whites. One of Markey's latest tactics is (not making this up) is trying to get Apple to reimburse all his poor constituents whose kids went on the Apple App Store with their parents credit card and ordered apps. The story about the lady that lost her life savings of $130K on HLF is sad but the reality is the lady was offered mult times a refund on her purchases. Nobody forced her to make very poor business decisions just like nobody forced the poor hispanic to spend $25K on lottery tickets without winning a dime. Markey could care less about this poor lady, the only person he cares about is himself. Both Ackman and Markey are self serving narcissist. Do not be surprised if another of Ackman's prey, Rep Linda Sanchez, CA , also jumps in the limelight. HLF has explained its business model over and over and this will only strengthen its case.
    The fact is the SEC already did an “investigation” 4 years ago when Barry Minkow made his unfounded “pyramid scheme” allegations and the PCAOB reviewed this engagement and had no findings. Nothing has changed in their business that would lead to a different conclusion by any of the regulators. KMPG and PwC have done an in-depth review and have same conclusions. The FTC also investigated them years ago and found no problems. The Belgian courts sided with HLF...Astute investors like Icann, Stiritz Chapman, Loeb have come to the same conclusion. This "manufactured noise" is all bogus.

     

    A very good quarterly report is just a few weeks away and how many times does HLF have to telegraph a huge share buyback. Quoth and Matt will have written 2 more bs articles in SA. Great buying opportunity.
    23 Jan, 12:17 PM Reply Like
  • Icahn is hardly "astute". More like senile.
    23 Jan, 01:31 PM Reply Like
  • "Nobody forced her to make a poor business decision" which was certainly never presented to her that way when they showed her how easy becoming an HLF millionaire could be in a roomful of adoring MLMers hammering away at her purse echoing same message, standard MLM marketing.

     

    Legalistically it has never been illegal in this country to offer up any product or service of little or no value and unless you can prove intent fraud is very difficult to nail anyone for. Good luck investigating that. On the bright side she has enough HLF products for her great grand kids now. One of them might even sign up someday never know
    23 Jan, 03:52 PM Reply Like
  • This is a good thing for the longs. Just wait for the answers.
    23 Jan, 12:18 PM Reply Like
  • I find it hilarious that people are arguing that this senator is a liberal and must be getting kick backs from Ackman yet cannot fathom that this company has been fleecing people for decades. True political bias at work.
    23 Jan, 01:24 PM Reply Like
  • optionsexpert: "I find it hilarious that people are arguing that this senator is a liberal and must be getting kick backs from Ackman yet cannot fathom that this company has been fleecing people for decades."

     

    I wonder if Markey would write a similar letter to the SEC to request that they investigate the market manipulation by a Wall Street billionaire. The 99% in Massachusetts deserve to know why Markey is merely copy and pasting Ackman's "questions" onto his US Senator letterhead and using the power of his public office to benefit Ackman ... a resident of Connecticut.
    23 Jan, 03:46 PM Reply Like
  • Tax $$ at work. Simple 90% of distributors feed the 10%. Don't need any investigation, ask any of his staff who've been involved in one or the janitor maybe the sandwich guy outside. They'll confirm it. Business model has been around for many decades.
    23 Jan, 01:41 PM Reply Like
  • It is markey making the request because he is retiring soon (no one is going to pressure him much), is a straight shooter and actually cares about the public. I crossed paths with him in my lobbying days and I was impressed.
    23 Jan, 01:42 PM Reply Like
  • Big surprise? I went to a job interview about 20 years ago with Herbalife and that is exactly what it is, a pyramid scheme. I responded to an ad in the newspaper, the ad was misleading. They made it sound like a great business opportunity you could not pass up.

     

    Once I go to the interview, they were very vague about the realities of the job. They asked me questions that were geared to how many people I could get to sell their products and create an income stream. Then of course they wanted me to buy their product right on the spot. After everything was done, I told them I had to do some more research about their company and I had to think about it. They acted offended by that. That was the last time I had anything to do with them.

     

    Your job is to recruit others who use their product. Then, you profit from any downstream sales. This is the same way Amway works. These are pyramid schemes. Does it take our genius government decades to realize what most people have known for decades?
    23 Jan, 03:53 PM Reply Like
  • The Herbalife pavement has a lot of elephants beating it up. I cannot see how the small investors manages to escape without getting trampled on. But the market could do without the added variable of "activist politicians". There is Icahn, Ackman and friends for that.
    23 Jan, 04:20 PM Reply Like
  • Doesn't look like HLF is NOT going to answer any of the Senators request.

     

    In a e-mailed statement to the Wall Street Journal, Barb Henderson, senior vice president of corporate communications of Herbalife Ltd. (NYSE:HLF) said, “We received the letter from Senator Markey this morning and look forward to an opportunity to introduce the company to him and address his concerns at his earliest convenience.”

     

    HLF would like to talk to the Senator directly - not to the Senators staff or correspondence by email.
    23 Jan, 10:52 PM Reply Like
  • powershake: "HLF would like to talk to the Senator directly - not to the Senators staff or correspondence by email."

     

    I'd love to hear Markey explain to Herbalife where that Mass woman's $130K went. Why do these politicians always bow down to Ackman BEFORE talking to the Company to see what is really going on? Markey by his own words has no clue or "position on the merits of the allegations" ... but he followed Ackman's orders anyway and tanked the stock price by using his new found power of a US Senator's office, instead of doing ANY due diligence by contacting Herbalife.
    24 Jan, 11:59 AM Reply Like
  • Just2look,

     

    "Markey by his own words has no clue or "position on the merits of the allegations" ... but he followed Ackman's orders anyway"

     

    Its pretty clear the senator somehow will be rewarded -- $$$$$$$$
    He is not going to stick out his neck for nothing!

     

    A Spike in Options Trading Before Herbalife’s Stock Fell http://nyti.ms/1e6fKcp
    26 Jan, 12:03 AM Reply Like
  • He isn't sticking his neck out. It is not illegal for Senators to benefit from stock manipulation, insider information or doing a solid for a constituent by asking for an investigation and tanking a stock price, irrespective of any facts.
    26 Jan, 01:03 AM Reply Like
  • kata: "He isn't sticking his neck out. It is not illegal for Senators to benefit from stock manipulation, insider information or doing a solid for a constituent by asking for an investigation and tanking a stock price, irrespective of any facts."

     

    Sure it is. See the STOCK Act. Is there "wiggle room" in the law, probably. I doubt Senator Markey will face any charges, even though its quite clear to me that his Office was used to manipulate HLF's stock price to benefit of Ackman and short side investors who has prior, non-public information the Senator was going to release that letter.

     

    Since Senator Markey claims to have "seen reports" of someone who lost $130k and used that as the reason for writing the SEC and FTC (at Ackman's request) ... shouldn't that report be made public so investors can make informed investment decisions?
    26 Jan, 08:30 AM Reply Like
  • I think sunshine is best disinfectant, to repeat a phase, and all public employees emails, texts and tweets should be public, period. All public business should be mandated to be conducted on publically accessible channels that are easily identifiable. There don't have to be separate laws mandating the ethical conduct of public officials, there are enough of them within the ethics laws now. But its pretty easy to get around them if you want to but hard to hide from open communications. Besides, take a look at a Charlie Rangel for example. So what if he's a liar. He dresses well. Or Jon Corzine, so what if he steals two billion dollars, he's one of us. Or Eric Holder, so what if he commits perjury, he's only the top law enforcement official of the USA. The law means nothing if it's not enforced the same for all and it never is. But the Internet is an opportunity to let the sun shine in if it's open and mandatory for all who choose to lead and benefit personally from it.
    26 Jan, 01:57 PM Reply Like
  • Sucker is going down. I hope and think the same guys who pumped this dumpster are the ones who will lose it back now.
    23 Jan, 11:58 PM Reply Like
  • Interesting development. We cover HLF on our site, as we have been asked by subscribers to do so, but don't issue buy recommendations on it. It's risk quality rating is too low for us. Only marginally, but enough.
    24 Jan, 12:57 AM Reply Like
  • There were thousands of Madoff victims. Where are all the Herbal Life and Nu Skin "victims"? Are they marching and clamoring for justice in the streets; or are the "victims" a bunch of hedge fund short sellers who have lost money so far.
    I haven't joined any multi-level marketing companies myself, but I have a hard time becoming exercised about schemes without victims. Shouldn't participants have the freedom to spend their time and energies where they wish without some Washington politicos trying to protect them against themselves (particularly when no one is coming forth as victims).
    24 Jan, 01:50 AM Reply Like
  • Something that intrigues us about HLF is that even with their high 192% Debt to Equity (DER) ratio, they still manage to record a very high 38% Return on Total Capital (ROTC). Only 4 stocks in the S&P500 manage similar high numbers for both:

     

    Colgate-Palmolive Co. (CL)
    Lockheed Martin Corporation (LMT)
    United Parcel Service, Inc. (UPS)
    Viacom, Inc. (VIAB)
    24 Jan, 02:22 AM Reply Like
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