Federal investigation launched into Herablife Ltd business activities

The US justice department and FBI have launched an investigation into the business activities of Los Angeles nutritional products company Herbalife Ltd, which, according to critics, had been operating an illegal pyramid scheme, the Los Angeles Times reported.

The newspaper reported that law enforcement sources had confirmed the investigation. The investigation agency initiated the process against the company "more than several months ago," the newspaper reported a person who had been briefed on the investigation as saying.

The official who requested not to be named as the investigation was ongoing, said the agency was doing its job of getting to the bottom of the issue. He added, he would stress that no one was going to be arrested imminently, and may be no one would be arrested.

Shares of Herbalife Ltd were hit the most in more than a year yesterday after reports of the investigation emerged. The stock fell $8.36, or 14 per cent, to close yesterday at $51.48; amid heavy trading.

According to a statement by the company it was unaware of the FBI probe, first reported by the Financial Times.

"We have no knowledge of any ongoing investigation by the DOJ or the FBI, and we have not received any formal nor informal request for information from either agency," the statement said. "We take our public disclosure obligations very seriously. Herbalife does not intend to make any additional comments regarding this matter unless and until there are material developments.

The New York Times reported that hedge fund manager William A Ackman had staked a billion-dollar bet that the company was a pyramid scheme.

However, it was not clear whether the FBI investigation had gained much momentum, the report added. The report said an official briefed on the matter told the newspaper that the inquiry had been ongoing for several months without a subpoena being served on the company.

According to the official, it was possible that the authorities would close the case without taking action against Herbalife.

The criminal inquiry comes at a time when civil investigations by the Securities and Exchange Commission and the Federal Trade Commission were under way. Both regulatory agencies, which faced a lower burden of proof than criminal authorities, could fine Herbalife if it turned out that the marketing practices amounted to a pyramid scheme.