The probe was confirmed the same week news surfaced that Herbalife has been sued by a shareholder and is being investigated by New York Attorney General Eric Schneiderman.

Josh Long, Associate editorial director, Natural Products Insider

April 17, 2014

3 Min Read
Herbalife Facing Illinois Attorney General Probe

CHICAGO—Illinois Attorney General Lisa Madigan is investigating Herbalife Ltd., the marketer of nutritional and weight loss products whose business practices are being scrutinized by state and federal authorities.

"We are confident in the integrity of our long-standing business and the Company's compliance with applicable laws and regulations," Herbalife said today in a statement. "We look forward to working with the Illinois Attorney General's office to resolve the consumer complaints it has received."

A spokesperson for Madigan's office confirmed the investigation just three days after the New York Post, citing anonymous sources, reported that New York Attorney General Eric Schneiderman is investigating claims that Herbalife is a pyramid scheme. Matt Mittenthal, press secretary for the New York State Attorney General, said he couldn't confirm or comment on the Post's report.

Maura Possley, press secretary for the Illinois Attorney General in Chicago, who confirmed Herbalife is under investigation, did not provide further information. Reuters first reported on the probe earlier today.

It has been a rough few weeks for Herbalife, whose multi-level marketing (MLM) business model is being investigated by an increasing number of state and federal government authorities.

On Monday, an Herbalife shareholder sued the company in California federal court in an effort to represent a class of investors. Abdul Awad, the plaintiff, claimed Herbalife made false and misleading statements and/or failed to disclose the company is a pyramid scheme and inappropriately pressured its members to buy more products to resell as a distributor, according to court documents filed in the U.S. District Court for the Central District of California.  

Julian Cacchioli, a spokesman for Herbalife, said the lawsuit lacks merit and the company planned to mount a vigorous defense. Herbalife also is defending a lawsuit that was filed last year by a former distributor.

"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," Cacchioli said. "As we have stated repeatedly, we are confident in our products and in our compliance with all applicable laws."

Last week, the Financial Times, citing "people familiar with the matter," broke the news that Herbalife was being invested by the Federal Bureau of Investigation and U.S. Department of Justice. Other media outlets also confirmed the investigation. Herbalife said it was unaware of the investigation and neither the FBI nor the Justice Department had requested information from the company.

The recent developments come on the heels of last month's revelation that FTC is investigating Herbalife, which has acknowledged receiving a civil investigation demand from the agency.

The government probes are a boon for hedge fund manager Bill Ackman, who bet $1 billion that Herbalife would collapse. Ackman's Pershing Square Capital Management took a short position on Herbalife's stock, which allows its investors to profit if the stock price falls. According to an article in Bloomberg last month, Ackman said Pershing's investors would make about $2 billion if Herbalife disappeared.

Since at least December 2012, Acman has accused Herbalife of operating a pyramid scheme that achieves few legitimate sales and exploits low-income distributors. As detailed in the shareholder lawsuit, Ackman contended 1.9 million distributors have failed to make money from Herbalife, incurring cumulative losses of USD $3.8 billion.

Herbalife has repeatedly denied the pyramid scheme allegations and said most of its distributors, or members, purchase its products for their own consumption rather than as a business opportunity.

About the Author(s)

Josh Long

Associate editorial director, Natural Products Insider, Informa Markets Health and Nutrition

Josh Long directs the online news, feature and op-ed coverage at Natural Products Insider, which targets the health and wellness industry. He has been reporting on developments in the dietary supplement industry for over a decade, with a focus on regulatory issues, including at the Food and Drug Administration.

He has moderated and/or presented at industry trade shows, including SupplySide East, SupplySide West, Natural Products Expo West, NBJ Summit and the annual Dietary Supplement Regulatory Summit.

Connect with Josh on LinkedIn and ping him with story ideas at [email protected]

Education and previous experience

Josh majored in journalism and graduated from Arizona State University the same year "Jake the Snake" Plummer led the Sun Devils to the Rose Bowl against the Ohio State Buckeyes. He also holds a J.D. from the University of Wyoming College of Law, was admitted in 2008 to practice law in the state of Colorado and spent a year clerking for a state district court judge.

Over more than a quarter century, he’s written on various topics for newspapers and business-to-business publications – from the Yavapai in Arizona and a controversial plan for a nuclear-waste incinerator in Idaho to nuanced issues, including FDA enforcement of the Dietary Supplement Health and Education Act of 1994 (DSHEA).

Since the late 1990s, his articles have been published in a variety of media, including but not limited to, the Cape Cod Times (in Massachusetts), Sedona Red Rock News (in Arizona), Denver Post (in Colorado), Casper Star-Tribune (in Wyoming), now-defunct Jackson Hole Guide (in Wyoming), Colorado Lawyer (published by the Colorado Bar Association) and Nutrition Business Journal.

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