(Adds comment from Herbalife)
By Nate Raymond
April 14 Herbalife Ltd was hit with a
shareholder class action lawsuit Monday accusing the
multilevel-marketing company of failing to disclose to investors
that its operations were based on a pyramid scheme.
The lawsuit, filed in federal district court in Los Angeles,
came three days after news emerged that the FBI was
investigating the nutrition and weight loss
The case appeared to be the first shareholder lawsuit to
emerge since hedge fund manager William Ackman in December 2012
unveiled his $1 billion short position against Herbalife and
said he considered it a pyramid scheme.
Herbalife contends it is a legitimate multilevel marketing
company and has sought to counter the claims by Ackman, who runs
the $12 billion hedge fund Pershing Square Capital.
"The complaint filed today is without merit and we intend to
vigorously defend the case," said Herbalife spokesman Julian
"These unfounded claims, styled as a securities suit, are no
more than a recitation of ill-informed allegations about the
company's business model previously made by a hedge fund manager
orchestrating a campaign against our company in support of his
$1 billion reckless bet ... We are confident in our products and
in our compliance with all applicable laws," Cacchioli said.
Beyond the FBI, the Federal Trade Commission is also
investigating Herbalife. In the wake of the regulatory
attention, Herbalife's stock has this year fallen 33.2 percent.
It closed Monday up 4.41 percent at $53.75.
The lawsuit on Monday was filed by Abdul Awad, an Herbalife
shareholder who claims to have bought the company's stock at
inflated prices because of false or misleading statements.
The complaint contends Herbalife misrepresented and failed
to disclose that it operated a pyramid scheme in which
distributors primarily generated revenue by recruiting other
distributors rather than selling products.
The lawsuit also claims Herbalife failed to disclose to
investors that it engaged in "deceptive trade practices" to
pressure customers to buy more products as distributors.
As part of the proposed class action, Awad is seeking to
represent all investors who bought Herbalife securities between
May 4, 2010 and April 11, 2014.
Representatives for Herbalife did not immediately respond to
requests for comment.
The case is Awad v. Herbalife Ltd, et al, U.S. District
Court, Central District of California, No. 14-02850.
(Reporting by Nate Raymond in New York; Editing by Lisa
Shumaker and Gopakumar Warrier)