The U.S. Federal Bureau of Investigation is probing Herbalife Ltd., the nutrition and weight loss company that hedge fund manager William Ackman has called a pyramid scheme, sources familiar with the investigation said on Friday.
The news, first reported by the Financial Times, sent the company's stock price down nearly 14 percent.
One source briefed on the matter said that the investigation has been going on for some time, but declined to give further details. A spokesman for the FBI in Boston declined to confirm or deny the investigation. No charges have been filed in the matter.
Former Herbalife distributors reached by Reuters said they had been contacted by agents who were interested in finding out more about the multilevel marketing company's business practices, including how it recruits new members into its distribution scheme.
FBI agents are also reviewing Herbalife documents obtained from former distributors, two other sources familiar with the matter said.
Herbalife said on Friday that the company has not received any inquiries from the FBI or the Justice Department about any investigation.
The company has steadfastly denied running a pyramid scheme, where distributors earn more money for recruiting new members into the scheme than they do by selling products to consumers.
The news comes roughly a month after Herbalife confirmed that the Federal Trade Commission had issued a civil investigative demand to the company to look more closely at how it works.
The company employs a vast network of independent distributors who sell its powders and shakes in more than 80 countries, including China, the company's fastest growing market.
Herbalife has been a battleground for heavy-hitting investors. Ackman, who runs $13 billion hedge fund Pershing Square Capital Management from New York, first called Herbalife a fraud in December 2012 when he unveiled a $1 billion short position against the company.
Since then, billionaire investors Carl Icahn, George Soros, Daniel Loeb and William Stiritz have taken the other side of the bet, helping push the stock price higher last year. Icahn, Herbalife's biggest shareholder, last month scored three additional board seats, paving the way for the activist to control a total of five seats.
This year Herbalife's stock price has tumbled 34.6 percent, kicked lower first by news in January that U.S. Senator Edward Markey wanted regulators to probe the company. Last month news that the FTC opened an investigation hastened the fall. On Friday, the company's stock price closed at $51.48.
© 2014 Thomson/Reuters. All rights reserved.