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Herbalife may have misled investors, SEC on impact of FTC deal, one short-seller says

An Herbalife logo is shown on a poster at a clinic in the Mission District in San Francisco, California April 29, 2013.

After U.S. multi-level marketing company Herbalife (HLF.N) settled a probe of its sales practices with the U.S. Federal Trade Commission last month, top executives assured investors that the company would be able to thrive under the new rules.

The consumer protection agency had questioned the company's sales methods.

Billionaire investor William Ackman in 2012 claimed the company was running a pyramid scheme, recruiting members with a promise of payment for enrolling others in distribution, rather than depending on the actual sale of its nutritional supplements and weight management products.

In its July 15 ‎settlement Herbalife agreed to restructure its U.S. business so distributors are rewarded for sales rather than for recruitment of sales agents and it agreed to pay a $200 million fine.

But Herbalife's filings with the U.S. Securities and Exchange Commission painted a much less optimistic picture than its presentation to analysts and investors, according to a private investor who flagged the differences to the SEC this month.

Matthew Handley, an investor based in Lakewood Ranch, Florida alleged Herbalife made "purposefully deceptive statements" in its Aug. 3 quarterly earnings conference call and regulatory filings.

Handley, who is betting Herbalife's stock price will fall, told Reuters about his outreach to the SEC and provided a copy of his letter to its whistleblower office.

"The transcript of the conference call, when compared directly against the actual language the company issued in their 10Q, depict a clear pattern of purposeful intent to deceive investors and the market," Handley wrote in the Aug. 16 letter.

"The things you say on the call and write in the filing have to match up, and I thought they just didn't," he later said in an interview with Reuters.

Because Herbalife's conference call transcript and its SEC filings are publicly available, securities law experts said the...


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