Herbalife faces FTC inquiry after activist campaign

Herbalife office building in downtown Los Angeles, California, on January 24, 2014 (AFP/File, Frederic J. Brown)

Herbalife, which has been accused for more than a year by activist investor William Ackman of running a pyramid scheme, said it was "confident" it would be vindicated.

"Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace, and will cooperate fully with the FTC," the company said.

"Herbalife is a financially strong and successful company, having created meaningful value for shareholders, significant opportunities for distributors and positively impacted the lives and health of its consumers for over 34 years."

The investigation follows repeated criticism of the company by Ackman, head of hedge fund Pershing Square, who has described Herbalife as a scam that makes money by recruiting more distributors rather than selling nutritional products, diet food and other items to consumers.

The activist's latest broadside came Tuesday when he accused Herbalife of extending the pyramid- scheme model to China, violating Chinese laws on recruiting and compensating sales staff in the process.

The company's securities filings are "false and misleading" on China, he added.

Herbalife, which has consistently denied Ackman's charges, said the latest Pershing Square attack "reflects Ackman's continued failure to fundamentally understand Herbalife's business model."

Herbalife said it follows the law in China, where it "has established itself as a leading nutrition brand and legitimate direct-selling company."

Ackman has reportedly bet more than $1 billion that shares of Herbalife would decline. Besides talking up his case to investors, he has lobbied lawmakers in Congress to scrutinise the company.

He last year sparred in a joint television appearance with fellow billionaire Carl Icahn, who sharply criticised Ackman's arguments on the company. Icahn is the company's biggest investor with a 16.8 per cent stake.

Herbalife shares fell 7.4 per cent to $60.57 after disclosing the probe.