The SEC has launched an inquiry into the operations of Herbalife (NYSE:HLF), The Wall Street Journal is reporting. Citing an individual "close to the probe," the newspaper wrote that the action is to be led by officials at the regulator's New York office.
The news comes one day before an analyst and investor meeting the company is holding to address allegations that it operates as a pyramid scheme, as activist investor William Ackman claimed last month.
Without naming Ackman directly, Herbalife CEO Michael Johnson assertively denied the charges. In a video posted on the company's website, he characterized the claims as "unfair and unsubstantiated attacks," saying that critics are "creating stories and fantasies with the goal of making a quick buck by driving down the price of our stock."
Meanwhile, another high-profile activist investor, Daniel Loeb of the hedge fund Third Point, has taken a long position in Herbalife amounting to just over 8%. In a letter to shareholders quoted by The New York Times, Loeb dismissed the pyramid scheme accusation, writing that "we do not believe it has merit."
Eric Volkman has no position in Herbalife. The Motley Fool has long Jan 2014 $50 Calls on Herbalife. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.