FTC Investigates Alleged Herbalife Pyramid Scheme

A hedge fund investor's claims about the popular health company have started a probe by regulators.
3:00 | 03/13/14

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Transcript for FTC Investigates Alleged Herbalife Pyramid Scheme
So many questions about this next story. A new investigation into the popular health company herbalife. The company announced it is under investigation by the federal trade commission. In the aftermath of one hedge fund investor calling it a pyramid scheme and ABC's Rebecca Jarvis is here to explain it all. Rebecca. Reporter: There are billions of dollars at stake here. A lot of ego. Investors bet huge amounts of money on the success and failure of herbalife and now this morning after over a year of bitter public battles between top Wall Street titans, regulators are investigating herbalife. Questioning how the nutrition company runs its business. Herbalife known to many for its total control weight loss supplements making headlines this morning after announcing it's under investigation by the federal trade commission. Is the company operating as a pyramid scheme and making more through recruitment or through the product. Reporter: It markets various energy snack, vitamin supplements and skin care products made $4.8 billion in sales with 3 million distributors in more than 90 countries. Now it's up to investigators to determine whether any of that was earned through unfair or deceptive acts or practices. Herbalife says it welcomes the inquiry and is confident that herbalife is in compliance with all applicable laws and regulations. But not everyone agrees. A hot topic for epic billionaire battles on cable news between hedge fund titans bill Ackman and Carl icahn. Let's move on. Ackman calling herbalife a pyramid scheme and lobbying regulators to investigate and placing a $1 billion short sale bet that herbalife's stock will drop and the company will fail. And drop, it did, after news of the investigation hit wall Street. Shares of herbalife stock plunging yesterday after the stock was briefly halted at one point down as much as 16%. They ended lower by more than 7%. So what happens next? You can bet the stock will be volatile. Experts say the investigation could last as long as a year and typically in cases like this if the ftc finds anything wrong at the company, it recovers money that was lost by the affected consumers, Lara.

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