Herbalife Fight Moves to Capitol Hill

Uh, oh. You know things can only get worse when the US Congress gets involved. The Massachusetts Republican candidate for Democratic US Senator Edward Markey's seat on Monday filed an ethics complaint against his rival on the grounds he may have acted improperly in asking regulators to investigate nutrition company Herbalife.

Markey had called on the Securities and Exchange Commission and the Federal Trade Commission in January to investigate Herbalife after he said constituents complained they lost thousands of dollars after signing on as distributors.

Herr, who is seeking to unseat Markey in November elections, said that Markey's move caused Herbalife's stock to drop 14% and helped hedge fund manager William Ackman's $1 billion short bet against the company.

“All you have to do is connect the dots to easily see that Senator Markey used his public office to manipulate the stock of a publicly traded company in order to financially benefit a campaign donor,” Herr said.

Herbalife said last week that the Federal Trade Commission had opened an investigation into its business. Ackman has accused Herbalife of running a pyramid scheme, a charge that Herbalife denies.

Markey said he is working for his constituents and “fighting on behalf of consumers is what I've done my entire career.”

“The fact that the FTC has now opened its own inquiry into this case confirms that asking the agency to investigate was the right course. I await the FTC's findings.”

Ackman, who runs the $12 billion hedge fund Pershing Square Capital Management, donates money to both main political parties. In 2013, he gave $32,400 to the Democratic Senatorial Campaign Committee. He donated $20,000 to the National Republican Senatorial Committee in 2012, according to the Center for Responsive Politics, which tracks campaign donations.

Herr, a selectman for the town of Hopkinton, lodged his ethics complaint with US Senators Barbara Boxer and Johnny Isakson, who chair the Senate's Select Committee on Ethics.

Ackman's bet long lost money as Herbalife's stock price shot higher over the last year. But on Monday Herbalife's closed down 7.8% at $53.50, below the fund's cost basis.

Ever since unveiling the short bet publicly in December, Ackman has lobbied lawmakers, including Markey staffers, plus regulators to determine whether Herbalife is a pyramid scheme where distributors earn more by bringing in new distributors than they do from selling the product.