Herbalife Faces FBI, Bharara, New York State Probes

Apr 15 2014 | 12:23pm ET

Things have gone from bad to worse at Herbalife, the nutritional supplements company targeted by hedge fund Pershing Square Capital Management.

Already under investigation by the Federal Trade Commission, Herbalife now faces three other probes and a shareholder lawsuit echoing Pershing Square's allegations that the company is a pyramid scheme.

The Federal Bureau of Investigation has opened a probe into Herbalife, contacting former distributors and reviewing documents obtained from them. The investigation is focused on Herbalife's business practices, including its recruitment of new distributors, the Financial Times reports. Manhattan U.S. Attorney Preet Bharara is also looking into the Los Angeles-based company.

Herbalife also faces scrutiny from New York Attorney General Eric Schneiderman, after two would-be whistleblowers offered the official sworn testimony, the New York Post reports.

Herbalife has steadfastly denied Perhing Square's allegations, made in late 2012 after the hedge fund opened a $1 billion short bet against the company. The charges leveled by Ackman fell on mostly deaf ears for more than a year before the FTC opened its probe, sending Herbalife shares down sharply.

Herbalife, already facing a potential class-action lawsuit from a former distributor, now faces one from a shareholder. Abdul Awad yesterday sued the company, alleging that it defrauded investors by failing to disclose that it is a pyramid scheme.

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