Herbalife (NYSE:HLF) shares have lost more than half their value in 2014 -- a Federal Trade Commission investigation and a string of poor earnings reports have hit the company hard. But even down 50%, Herbalife could be poised for a more significant drop. Many Herbalife bears, notably hedge fund manager Bill Ackman, believe a total loss is not only possible, but probable.

Below are three scenarios that could further devastate Herbalife shareholders. It's important to note that there's no guarantee Herbalife shares will fall further -- a general market rally could support shares even if its business is deteriorating. Nevertheless, the following outcomes would not be welcomed by Herbalife investors.

Policy changes do not produce the long-term benefits management claims
More than half of 2014's sell-off has come in the wake of its most recent earnings report. Herbalife's third quarter was, by nearly every metric, horrendous, with earnings, revenue and guidance coming in short of expectations.

To explain the weak quarter, Herbalife's management cited two changes it had made to its membership policies.

As a multi-level marketer, Herbalife depends on its network of members and distributors to move its products, and its ability to recruit and retain members is vital to its financial health. Members purchase product and recruit other members, who do the same. As they recruit and purchase, Herbalife distributors move up the compensation ladder, attaining new levels and qualifying for additional bonuses.

During the third quarter, Herbalife made it more difficult to qualify as a sales leader. It also put a limit on the amount of product new Herbalife customers can purchase. Both changes create problems, making it less attractive for Herbalife members to pursue the company's business opportunity. Herbalife management, however, believes both changes will ultimately benefit the company, as members that pursue the business opportunity in a slower, controlled fashion are more likely to stick around.

But if that's not the case -- if the changes continue to weigh on Herbalife's membership base, and thus its finances -- Herbalife's earnings could continue to disappoint.

More directors leave the board
Alongside its third-quarter earnings, Herbalife announced that one of its longtime board members, Leroy Barnes, was retiring. Barnes is the fourth Herbalife board member to leave this year.

The other three departing board members were replaced by nominees of hedge fund manager Carl Icahn, who is Herbalife's largest shareholder. Icahn amassed his stake in Herbalife shortly after Bill Ackman first targeted the company nearly two years ago, and now owns nearly one-fifth of Herbalife.

Given his legendary track record, Icahn's support of Herbalife has long been seen as a stamp of approval, casting doubt on Ackman's case. But if Icahn were to sell his position, it is likely that his nominees would resign from the board. It may also spark a tremendous sell-off, as investors who may have been betting with Icahn look to dump their shares.

The government shuts it down (or makes it really hard to do business)
Lastly, and most significantly, Herbalife shares would plummet if the FTC charged the company with operating an illegal pyramid scheme. This is the long-standing bear thesis, but remains as relevant to the story as ever.

Mostly recently, Herbalife CFO John DeSimone told Bloomberg that the company expected to be "exonerated" by the FTC, but declined to say more. Of course, given the circumstances, it's difficult to imagine DeSimone saying anything else.

In March, the FTC sent Herbalife a Civil Investigative Demand -- a sort of subpoena on steroids. Evidence produced by a CID can be used by other agencies in other investigations -- notable, given that Herbalife is also, allegedly, under investigation at the FBI.

That isn't to say that the government will shut Herbalife down -- given that it has operated for more than three decades, the odds may still favor inaction. Moreover, even if the FTC does target Herbalife, it may amount to a minor slap on the wrist or modest penalty that has little, if any, effect on its long-term business.

Still, until the FTC announces a settlement or shutdown, or drops its investigation entirely, it's a possibility that investors cannot fully discount.

Sam Mattera owns put options on Herbalife. The Motley Fool has the following options: long January 2016 $57 calls on Herbalife. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.