Shares of Herbalife Ltd. suffered their biggest loss in more than a year Friday following a report that criminal authorities are investigating the Los Angeles nutritional products company.
The FBI has launched a criminal investigation of Herbalife and its web of independent distributors, a federal law enforcement source told The Times.
A federal law enforcement official in New York confirmed Friday that the FBI had opened an inquiry into Herbalife but did not know first-hand the extent of the investigation. "I can't give any guidance on where it's headed," the official said.
The official asked not to be identified because he was not authorized to speak about publicly about the investigation, which was first reported by the Financial Times.
At the FBI, Christos Sinos, a supervisory special agent, did not deny that an inquiry was underway. Rather, he said simply, "We are not commenting."
The stock plummeted $8.36, or 14%, to $51.48, and trading volume was heavy.
The report was the latest bad news for Herbalife, which has been dogged by accusations from hedge fund manager Bill Ackman that it is running a pyramid scheme.
The Federal Trade Commission confirmed last month that it was conducting a civil inquiry of Herbalife. And Herbalife has previously disclosed that the Securities and Exchange Commission was investigating the company.
Herbalife, which has adamantly denied Ackman's allegations, said in a statement that it was unaware of the latest probe.
"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."
Herbalife sells nutritional and health products through independent salespeople in more than 80 countries. Its products are not available in stores.
Ackman accused Herbalife more than a year ago of running a pyramid scheme in which salespeople make more money recruiting new sales agents than selling products. Only those at the top of the company make money, while more than 90% of distributors earn nothing or even lose money, Ackman said.
Herbalife has not been accused of wrongdoing and the latest investigation may not lead to charges, according to the report by the Financial Times.