Shares of Herbalife Ltd. (HLF—NYSE) have enjoyed a sustained increase since the nutrition company reported favorable earnings on Thursday and disclosed it is in talks to resolve an ongoing Federal Trade Commission probe.
In a Securities and Exchange Commission filing that accompanied Herbalife’s Thursday earnings release, management said it currently is discussing potential resolutions of the FTC probe, which resulted from accusations by hedge fund manager Bill Ackman that Herbalife’s business model is a fraud. Ackman launched a campaign against the supplement seller in December 2012, backing his claims with a $1 billion short position in Herbalife stock.
Federal authorities also are investigating Herbalife’s counter-allegations that Ackman and his fund, Pershing Square Capital Management, manipulated the company’s stock. Herbalife’s SEC filing follows a Jan. 29 report by The Wall Street Journal, indicating that neither investigation has yielded sufficient evidence to support criminal charges.
Herbalife officials confirmed the company is cooperating with the probe, which commenced nearly 22 months ago. According to Herbalife’s annual report, FTC investigators requested documents and other information from January 1, 2009, to the present to ensure compliance with regulations governing advertising, marketing and sale of business opportunities.
In light of the talks with federal authorities, management did not venture to provide a timeline or likely result but said “the possible range of outcomes include the filing by the FTC of a contested civil complaint, further discussions leading to a settlement which could include a monetary payment and other relief or the closure of these matters without action.”
Herbalife’s report of discussions with the FTC and higher-than-expected profits was met with enthusiasm by investors, who sent the stock price soaring more than 20 percent on Friday to close the day at $55.15. The stock retained much of its gain in Monday trading, dipping less than 1 percent to close at $54.74.
Wall Street bulls notwithstanding, the latest report from Herbalife officials essentially preserves the status quo. “At the present time, the Company is unable to estimate a range of potential loss, if any, relating to these matters,” Chairman and CEO Michael O. Johnson said during the company’s earnings call. “We cannot comment on the scope, duration or the outcome of the investigation at this time. We will provide updates when appropriate to do so.”
