Herbalife discloses Justice Department probe
Nutritional drink company Herbalife on Tuesday said the Department of Justice has requested information about its members and its business practices.
"The Department of Justice recently sought information from the company, certain of its members and others regarding allegations being made about the business practices of the company and its members," the company said in a regulatory filing about its latest financial results.
Last month, Herbalife acknowledged a "federal criminal investigation" in a statement to CNBC, but the company didn't mentioned DOJ or questions into its members. The statement said that the investigation was tied to concerns of stock manipulation by billionaire Bill Ackman, who has been "shorting" the stock, or seeking to profit from the stock's decline.
"This is all the same thing and was covered back in April," said Herbalife spokesman Julian Cacchioli "The CNBC piece was about federal regulators (of which DOJ is one)," he said in an email.
Despite the scrutiny, shares of Herbalife soared on the company's expectations for growth in China — even as overall revenues declined.
The stock jumped 15% in late trading, or $5.91 a share to $46 a share after the company said sales in China jumped 21% in the three months ended in March to $164.2 million.
Expectations for growth in China allowed the company to raise its profit expectations for the year to as much as $4.60 a share from a previous high of $4.50 a share.
Overall, revenues declined 12.4% to $1.1 billion amid declining sales in North America and Latin America, including Mexico. The company was hurt by unfavorable currency exchange rates, it said.
Income rose 5% to $78.2 million, or 92 cents a share, compared with income of 74 cents a share this time last year. The bump was aided by lower sales and administrative expenses.
Herbalife has previously disclosed inquiries from the Federal Trade Commission and Securities and Exchange Commission stemming from Ackman's allegations that the company is a pyramid scheme.
At a conference last month, Ackman said senior Herbalife management have "hired or are looking to hire their own criminal defense counsel," an allegation that Herbalife has since denied.
"The fact that management is hiring its own defense counsel, we think is very significant," Ackman said at a conference by research firm 13D Monitor. "It means people are at risk of going to jail."
"It is absolutely not true and is just another stunt in Ackman's campaign, a campaign under criminal investigation by the FBI and DOJ, to drive down our stock price to enrich himself," Herbalife spokesman Michael Gutierrez responded in a statement.
