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FTC Corrects Herbalife Statement After Probe Report

By Kevin Orland and Duane D. Stanford
February 04, 2013 4:05 PM EST 9 Comments
Herbalife Ltd. President Desmond Walsh, pauses during a Bloomberg Television interview in New York.
Photographer: Scott Eells/Bloomberg
Herbalife Ltd. President Desmond Walsh, pauses during a Bloomberg Television interview in New York.

The Federal Trade Commission corrected a statement that erroneously said Herbalife Ltd. (HLF) was the subject of a law-enforcement probe after a report about the non-existent investigation sent the supplement maker’s shares down the most in a month.

The FTC, in responding to a Freedom of Information Law request from the New York Post, should have said that it withheld some information from documents posted online because it can’t disclose consumer complaints obtained from foreign sources if they request confidentiality, Frank Dorman, an agency spokesman, said today in an e-mail. The FTC’s correspondence with the newspaper, posted on the agency’s website, originally explained the redaction by erroneously citing an exemption for information obtained in a law-enforcement investigation.

The report sent Cayman Islands-based Herbalife’s shares down as much as 12 percent today, the biggest intraday decline since Dec. 21. The shares recovered the loss to close up 1.3 percent at $35.54 in New York.

Herbalife has been fighting allegations from hedge fund manager Bill Ackman, who said in December that the company uses inflated pricing, misleading sales information and a complicated incentive structure to hide a pyramid scheme. Ackman said he thought the FTC or the U.S. Securities and Exchange Commission would look into allegations he made about the company during a Dec. 20 presentation in New York.

Dorman declined to comment on whether the agency is investigating Herbalife. Any such investigation wouldn’t be public, he said in a phone interview.

Voluntary Dialogue

Herbalife said today in a statement that it was unaware of any regulatory interest or investigation other than a voluntary dialogue it was having with regulators.

“For a direct-selling company of our size, we have had a relatively low number of complaints to the FTC,” the company said. “However, we take every one of them seriously and stand by our record of doing right by our distributors and all consumers of our products.”

Herbalife has repeatedly denied the allegations that it operates a pyramid scheme, saying it is a retail-oriented business that sells products with unique ingredients.

The FTC, responding to the New York Post, released a file of complaints against the company. Consumers’ identifying information was withheld from the complaints, which were not necessarily verified by the FTC, the agency said in a letter to the Post included in the documents.

Job Interview

In one complaint posted on the FTC’s website, an unidentified individual spoke of being pitched on Herbalife products after expecting to be given a job interview to be a nutrition coach, according to the documents. The person spoke with a representative and was pressured to sign up. After giving credit card information and a $59.99 payment, the individual wanted to cancel the payment and was denied a refund, according to the documents.

“I was tricked into thinking I was going to be a nutrition coach, when it was really a distributor position for Herbalife products that costs $59.99 to be part of,” the individual said in the documents.

In other instances, an unidentified individual said the company used “bait and switch tactics and is refusing to issue a refund” while another said Herbalife resorted to “deceptive marketing practices.”

To contact the reporters on this story: Kevin Orland in Chicago at korland@bloomberg.net; Duane D. Stanford in Atlanta at dstanford2@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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