The Securities and Exchange Commission has opened an inquiry
into Herbalife Ltd. amid an intensifying public battle between the
seller of nutritional supplements and a hedge fund that argues it
is a pyramid scheme, a person close to the probe said
Wednesday.
The inquiry is being led by enforcement officials in the SEC's
New York office, the person said. The probe won't necessarily
result in any enforcement action, but it adds pressure on Herbalife
a day before a meeting with investors at which the direct seller
has promised a full rebuttal of the allegations lodged by
hedge-fund manager William Ackman.
A spokeswoman for the SEC declined to comment. Herbalife had no
immediate comment.
Mr. Ackman argued in a 300-plus slide presentation in December
that Herbalife is a pyramid scheme, because its distributors earn
more money recruiting other distributors than by selling products
to end users. The company has said the claim is inaccurate,
malicious and aimed at manipulating its stock price, charges Mr.
Ackman has denied.
Mr. Ackman says his hedge fund, Pershing Square Capital
Management LP, has bet more than $1 billion that Herbalife's stock
will fall. He is opposed not just by the company but by others in
the hedge fund community. On Wednesday, Daniel Loeb's Third Point
LLC said it had taken an 8.2% stake in Herbalife, a bet that the
stock will rise.
The inquiry by the SEC's enforcement division follows scrutiny
of Herbalife's financial disclosures by the regulator's corporation
finance division last year.
Write to Jean Eaglesham at jean.eaglesham@wsj.com
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