Herbalife (HLF) to Settle Probe with Federal Trade Commission

Shares of Herbalife Ltd. HLF rose 4.26% on May 24 closing after The New York Post reported that the company has reached an agreement with the Federal Trade Commission FTC to settle a years-long probe related to whether it is a pyramid scheme.

Per sources, Herbalife has agreed to pay a significant financial penalty. However, the terms haven't been divulged. Also, the agreement has not been finalized yet and could still fall apart.

The FTC opened a probe into the company after hedge fund manager Bill Ackman alleged that Herbalife operated like a pyramid scheme, which involves making money by way of recruiting more salespeople rather than selling products. Such models are illegal because they eventually collapse once there are no more people to recruit.

The Los Angeles-based company has been under pressure from billionaire Ackman since 2012 when he made a $1 billion bet against the company, questioning its business practices.

The company, which sells weight-management products through a network of independent distributors who earn sales commissions, has been denying the charges from the very beginning. The company clarified that it operates like a multi-level marketing company similar to Nu Skin Enterprises Inc. NUS, USANA Health Sciences Inc. USNA and Avon Products Inc. AVP.

Herbalife carries a Zacks Rank #2 (Buy).

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