(Corrects typographical errors in first and second paragraphs)
BOSTON May 1 The U.S. Securities and Exchange
Commission (SEC) is probing whether a number of hedge funds may
have acted improperly when they made bets on nutrition and
weight loss company Herbalife Ltd last year, a source
The regulator is reviewing whether investors may have
engaged in market manipulation or failed to properly disclose
that they were working as a group when they lined up against
billionaire investor William Ackman's short bet against the
company, said the person, who is familiar with the investigation
but not permitted to discuss it publicly.
A spokesman for the SEC was not immediately available to
comment. An official at Herbalife also declined to comment.
The story was first reported by the New York Times.
Ackman publicly announced in December 2012 that his $13.6
billion Pershing Square Capital Management fund had wagered $1
billion short bet, alleging that Herbalife was running a pyramid
scheme and that its stock price would eventually drop to zero.
The SEC, the Federal Trade Commission (FTC), several state
prosecutors and the Federal Bureau of Investigation (FBI) are
looking into these allegations.
A spokeswoman for Pershing Square did not immediately
respond to a request for comment.
Herbalife has steadfastly denied running a business where
members earn more for recruiting other members into the scheme
than for selling its products to retail customers.
But the SEC is now also looking to find information on which
hedge fund managers attended a so-called ideas dinner last year
and what was said about Herbalife, shortly before a group of
funds took long positions in the company. No one has been
accused of any wrongdoing.
A short squeeze is a trading scenario that occurs from time
to time in heavily shorted stocks, when bearish traders are
forced to buy shares to avoid big losses, something that ends up
pushing the stock only higher.
Herbalife's stock price shot up 138 percent last year when
prominent fund managers, including George Soros' family office,
Carl Icahn and Daniel Loeb's Third Point, took the other side of
Icahn predicted early in 2013 that Ackman would get caught
in the "mother of all short squeezes."
Although they remain on opposite sides of the Herbalife
trade and have had testy relations in the past, the men, two of
Wall Street's most widely followed activists, forged a truce
last week during a telephone call, agreeing to disagree on this
This year Herbalife's stock price has fallen 24 percent and
Ackman's fund has gained roughly 20 percent this year, three
investors said on Thursday.
(Reporting by Svea Herbst-Bayliss; Editing by Matt Driskill)