The shares of Herbalife Ltd., a company producing and distributing food additives, plunged by 11 percent at once in early trading on the New York Stock Exchange on February 4, 2012. According to Bloomberg, investors began to get rid of Herbalife securities after the New York Post said the company was subject to the law enforcement investigation.
After some time, the shares slightly rebounded and fell by 6%. The newspaper said the Federal Trade Commission released documents containing 192 complaints against Herbalife from the past seven years and there is the law enforcement investigation against the company. Apparently, the investigation is related to a scandal that took place in late 2012, when Bill Ackman, the manager of Pershing Square Capital Management bashed Herbalife as “the best-managed pyramid scheme in the history of the world”. According to him, the company spends more money on attracting new salespeople than on selling its product. Herbalife never concealed that it is a multi-level marketing company (i.e. individuals earn sales commission for sales made by distributors they manage to recruit into the company ) but always said it is no way associated with the pyramid scheme.
In addition, Ackman was accused of trying to manipulate Herbalife shares. The company filed a complaint against him to the Federal Trade Commission. However, over the past three months the company's shares fell by a third.
