Shares of Herbalife surged more than 9 percent Friday after disclosing that it is in advanced talks to settle a federal investigation into claims it essentially operates as a pyramid scheme. It's a claim that has dogged Herbalife for years and set off what has become an epic battle with activist investor Bill Ackman, who has been waging a campaign against the company since late 2012, according to AP. Herbalife, which sells supplements and weight-loss products, said in a regulatory filing that the possible settlement with the Federal Trade Commission "would likely include a monetary payment and injunctive and other relief." The situation is fluid, however, and a number of issues could prevent a final agreement being reached, Herbalife said in the filing late Thursday. If talks with investigators break down, a legal fight is likely, the company said. Ackman, who leads Pershing Square Capital Management LP, opened his campaign against Herbalife on Dec. 20, 2012, announcing a massive bet against the company, and made his case in a three-hour, PowerPoint presentation. He also released a 334-page indictment of the company, detailing operations he described as a pyramid scheme. In short, Ackman claims that the only way Herbalife makes money is by constantly recruiting more sales people, who must buy its products and then try to sell them. Ackman is betting that that pool he describes as a pyramid scheme will dry up and with no products being sold directly to consumers, Herbalife will implode.
