2011 Food Safety Issue Comes Back to Haunt Herbalife
A former employee of Herbalife Ltd has been subpoenaed by the New York State attorney general to produce documents regarding a 2011 safety concern about the company's nutritional shakes, The New York Times reported on Tuesday.
The ex-employee, who is seeking whistleblower status with the U.S. Securities and Exchange Commission, asked to remain anonymous, the newspaper said. The attorney general's office declined to comment.
The Times reported that the employee first approached the U.S. Food and Drug Administration with concerns about product safety before getting in touch with activist investor Bill Ackman, who offered to pay his legal fees, according to the Times.
Ackman has made a $1 billion short bet against Herbalife, and has been a vocal critic of the company since he disclosed his short position last December. He labels the maker of nutritional supplements as a pyramid scheme.
A spokeswoman for Pershing Square Capital Management, Ackman's firm, said she did not have a comment.
The health concern in question dates to 2011, when fine shards of metal were detected in some of Herbalife's nutrition shakes at a plant in California, according to the newspaper.
The problem was resolved within several weeks, The New York Times said.
Herbalife acknowledged the 2011 incident in a statement on Tuesday, and said only safe products were shipped to consumers.
The company added it received no complaints from consumers and that California state authorities have regularly audited the factory and found "no serious violations."
"We believe this story is yet another example of Mr. Ackman's desperation," Herbalife said.
Shares of Herbalife have soared this year, causing Ackman to see losses of hundreds of millions of dollars on his bet against the company.
Ackman's view has been challenged by other Wall Street titans, including investor Carl Icahn, a major stakeholder in Herbalife, and billionaire investor George Soros, who have both taken long positions on Herbalife.
Herbalife shares closed down 2.5 percent at $64.62 on Tuesday. The shares are still trading at more than double the price where they closed on December 31, 2012.
The company last month posted better-than-expected second-quarter earnings and revised its outlook upwards, citing a fast-growing distributor network and strong demand for its products.