Herbalife hires PricewaterhouseCoopers as its new auditor
Seven weeks after its auditor resigned in an insider trading scandal, Herbalife Ltd. retained major accounting firm PricewaterhouseCoopers as its new auditor.
The Los Angeles nutritional products company said Tuesday that PricewaterhouseCoopers would begin “immediately” to re-audit its financial statements for 2010, 2011 and 2012. Former auditor KPMG withdrew its audits of those statements after it learned of the insider-trading allegations.
Herbalife shares jumped on the news, gaining $1.33, or 2.7%, to $50.54.
KPMG abruptly resigned as Herbalife’s auditor in early April and fired longtime partner Scott London after he was accused of passing stock tips about Herbalife and several other clients to jeweler Bryan Shaw, a friend. Shaw used the information to make more than $1 million in profitable stock trades.
KPMG’s departure came at a difficult time for Herbalife, which has spent months defending itself against hedge-fund manager Bill Ackman’s allegations that the company operates a pyramid scheme.
Ackman made a $1-billion bet that the company’s stock would fall once regulators put a halt to the alleged scheme. Herbalife said Ackman was wrong and defended its multi-level marketing platform, which is used by other companies.
Although Herbalife was not at fault in the insider-trading probe, the company suffered as a result of KPMG’s resignation. The lack of audited financial statements hampered Herbalife’s plans to borrow money to repurchase shares of its stock, the company said.
Last month, London told The Times that he passed inside information to his friend Bryan Shaw as a favor. Shaw pleaded guilty Monday to conspiracy to commit insider trading and agreed to turn over nearly $1.3 million in ill-gotten stock gains. He has yet to be sentenced.
Because London had overseen audits of Herbalife and footwear company Skechers USA Inc., KPMG resigned as auditor for both companies. Skechers earlier announced it had hired BDO USA to replace KPMG.
In a statement, Herbalife said that KPMG’s resignation was related solely to London’s illegal conduct and “was not related to Herbalife’s financial statements, its accounting practices [or] the integrity of Herbalife’s management.”
“Investors should rest assured that the company will be working to assist PwC in any way necessary to facilitate their work,” said Leroy Barnes, chairman of Herbalife’s audit committee.
