Herbalife (NYSE: HLF) Possible Subject Of Investigation

Feb. 07, 2013 10:36 AM ETHLF
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Long/Short Equity, Portfolio Strategy

Contributor Since 2012

Founded in 2003, StockPromoters.com has tracked hundreds of thousands of promotions by thousands of promoters and counting. Stock Promotion can be an effective and necessary tool if done correctly and responsibly, and it can be crippling to both the public company and the promoter if done recklessly. StockPromoters.com Tracks thousands of promoters. We display their compensation and we know if they are actually the ones behind that public company despite what they may or may not disclose to the public. We cut through the tape and get right to the heart of the matter. Q. What is the purpose of the promotion? Is it being done to increase shareholder and corporate value in order to better serve the public company? Or is it to create liquidity so insiders and “friendly” shareholders can unload their position? Q. Does the promoter have any "skin in the game”? Are they paid in Cash? Free Trading Stock? Restricted Stock? Will he be selling his stock, or holding it for the long term? Do they believe in the company they're promoting? Q. What can you expect form this promoter? Is this a "Pump and Dump”, or is this a gradual marketing campaign to attract new shareholders? Do you want to know who the best promoters are and who you should be following? Do you want to know who the worst is and who you should avoid like the plague? All of this and more is answered by utilizing our proprietary stock promotion tracking system which is behind the StockPromoters.com website.

Shares of Herbalife (NYSE: HLF) fell sharply today then recovered a bit after a report that it is the subject of a federal investigation. The nutritional supplements company has been defending its business model lately against a hedge fund manager's accusation that it is a pyramid scheme. According to the New York Post, the FTC has released documents that contain 192 complaints spanning the past seven years. Reportedly HLF is accused of making false promises to some of the company's distributors. Allegedly the distributors also had difficulty collecting income they were owed and getting refunds. The information was released by the FTC in response to a request from the newspaper that fell under the Freedom of Information Act, but the FTC cautioned that it did not have to give out information that it had obtained as the result of a law enforcement probe.

The company has been through this before so today's rollercoaster ride is nothing new. Allegations that the company was a pyramid scheme made in December triggered an 80 percent selloff then that the company has largely recovered from. Shares dropped to a low of $24.24 and were selling today at a low of just $30.84, rebounding back to over $34.00. The company has released a statement saying that it is unaware of any investigation, pending or otherwise and downplaying the complaints that have been filed against them. This seems to have belayed that fears of most investors as the day has continued but for how long?

Herbalife is a global marketing company that sells nutritional supplements and weight loss products. The products are sold through a network of approximately 3 million independent distributors. The distributors are located 79 countries except China, where product is sold in retail venues. The company targets four principal categories of supplements: weight management, nutrition, sports and fitness and outer nutrition.

Shares of HLF are still up over 38 percent since hitting its 52 week low in December; however they are still trading at 54 percent under a high of $73 which was hit in April of 2012. One thing remains certain, the complaints are not going to disappear and shareholders will be holding their collective breath waiting to see what will happen next.

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.