According to a Bloomberg report, the federal investigators will be able to provide proof that Herbalife Ltd may either be a legitimate business or a pyramid scam as activist investor Bill Ackman has long claimed it to be. The hedge-fund manager has so far unsuccessfully force the nutrition company to produce receipts that are key to his claim he first made sixteen months ago in public. The news agency said that the records, of which Herbalife claimed its 550,000 distributors in the US are required to hold, could prove Ackman's claim that the protein shakes and vitamins are being bought back in order to get rich quickly.
The US Federal Trade Commission is currently heading the investigation regarding the legitimacy of Herbalife's businesses following Ackman's aggressive lobbying. Bloomberg said that FTC could seek the results of the periodic compliance audits Herbalife supposedly conducts involving the sales records.
Former FTC lawyer Joel Winston, who is now at Hudson Cook LLP in Washington, told Bloomberg in an interview, "It's going to be a long, drawn-out investigation. They have to get all of these records, and what they often run into in these cases is the company doesn't have records of retail sales."
Herbalife has since denied Ackman's pyramid scam claims. In March, the company disclosed the FTC's civil probe on the company's business, which indicated that Herbalife has called on the hedge fund manager and his company New York-based Pershing Square Capital Management LP's calls for a review. Bloomberg also said that the Federal Bureau of Investigation is also probing Herbalife, and Illinois Attorney General Lisa Madigan has been reviewing consumer complaints lodged against the nutrition company.
These are not the only times Herbalife tried to disprove publicly about Ackman's claims. Last year, the company commissioned a Nielsen survey regarding consumer habits of making weight and health-management product purchases. In 2012, the Cayman Islands-based company also ordered a Lieberman Research Worldwide survey about Herbalife consumer purchases.
Nonetheless, Ackman has yet to be satisfied with the company. In a June statement, he said, "Herbalife has incurred substantial expense in commissioning surveys while it has avoided collecting contractually available empirical data which would answer questions about the sales of Herbalife products to end consumers."
