Feds Look at Herbalife…Again

Suddenly, Bill Ackman doesn't seem much of an adversary. The US government is investigating dietary supplement maker Herbalife over whether it violated foreign bribery laws while conducting business in China, the company revealed in a regulatory filing on Friday. 

Herbalife, in which a billionaire investor and adviser to US President Donald Trump is the single largest shareholder, said that the US Securities and Exchange Commission had asked the company for records as part of its civil anti-corruption probe. The company is conducting its own independent review, and it has also separately discussed the matter with the US Justice Department, which is responsible for investigating criminal violations of the Foreign Corrupt Practices Act (FCPA).

“The company is cooperating with the SEC's investigation and cannot predict the eventual scope, duration or outcome of the matter at this time,” Herbalife said.

The probe into Herbalife's overseas activities comes as Carl Icahn, who owns more than $1.2 billion worth of Herbalife shares, or a 24.18%stake, will be serving as an unpaid special adviser on regulatory reform to Trump.

Icahn previously helped Trump's transition team weigh candidates such as Treasury Department nominee Steve Mnuchin, and he is expected to help guide the new administration on regulatory reforms, including potential Wall Street regulations. Trump has also referred to the FCPA, which is at the heart of the SEC's Herbalife probe, as a “horrible law” that he said puts US companies at a disadvantage. 

The SEC's probe of Herbalife comes on the heels of a July settlement with the Federal Trade Commission, which ordered the company to pay $200 million to resolve charges it deceived consumers into believing they could earn a lot of money by selling the company's products. Prior to the FTC settlement with Herbalife, hedge fund activist investor Ackman had repeatedly accused Herbalife of being a pyramid scheme and placed a $1 billion short bet on the stock in 2012. Ackman also previously said he had evidence that Herbalife was violating the law in China by making recruits pay an entry fee and by letting distributors recruit new members.

Icahn has clashed for years with Ackman over Herbalife and its value as a company. In September, Icahn said he wanted to seek permission to acquire an even bigger chunk of stock. Most recently, in November, he told Reuters he believed it was undervalued and that the company would help spur jobs. Herbalife's shares dropped 3.4% to $51.31 in early trading on Friday and remained unchanged at the close.