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Herbalife Ltd. (HLF-N) on Wednesday said the U.S. Federal Trade Commission had opened an inquiry into its operations, news that briefly sent the nutrition and weight loss company's share price down by more than 15 percent.
Billionaire investor William Ackman has for months called on regulators to investigate Herbalife's distribution model, which he calls a "pyramid scheme," where a company makes most of its money by recruiting new distributors rather than selling products to real customers.
Herbalife, which has denied operating such a scheme, said it "will cooperate fully with the FTC."
"Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace," the company said in a statement. "We are confident that Herbalife is in compliance with all applicable laws and regulations."
Herbalife's shared dropped 15 percent but recovered to be down 8.5 percent in midafternoon trading on Wednesday.
The commission declined comment on the probe.
Ackman's $12 billion US hedge fund, Pershing Square, has a $1.16 billion short bet on Herbalife, and has been short the stock since the middle of 2012.
News of the FTC investigation followed one day after a 2-1/2 hour long conference call on which Ackman accused Herbalife of breaking the law in China. Neither Ackman nor a representative of his fund responded to requests for comment.