Herbalife Hit with Civil Investigation by FTC

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Wall Street Herbalife
Richard Drew/AP
By Matt Egan

Herbalife (HLF), the controversial nutrition company under assault from billionaire Bill Ackman, has disclosed it has received a civil investigative demand from the U.S. Federal Trade Commission.

The news, which was first reported by Fox Business's Charlie Gasparino, represents a blow to a company that Ackman has bet more than $1 billion against amid claims it operates an illegal pyramid scheme. Herbalife's shares tumbled as much as 21.3 percent from their intraday highs on the disclosure.

The FTC's demand is similar to a subpoena and represents confirmation Herbalife is under investigation.

Ackman, head of hedge fund Pershing Square, has been pressuring lawmakers and civil groups to call on regulators to probe Herbalife's business practices for more than a year.

"Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace, and will cooperate fully with the FTC," the company said in a statement Wednesday. "We are confident that Herbalife is in compliance with all applicable laws and regulations."

Herbalife didn't disclose the scope or focus of the FTC investigation. %VIRTUAL-article-sponsoredlinks%The nutrition company said it doesn't plan to make additional comments on the FTC matter unless there are "material developments."

Shares of Herbalife tumbled to as low as $54.59 after trading resumed following the FTC disclosure, representing a 16.5 percent tumble from Tuesday's close and a 21.3 percent plunge from intraday highs of $69.41.

Herbalife closed down 7.37 percent on the day at $60.57.

Despite the enormous pressure from Ackman, Herbalife ended the day almost 43 percent above its close of $42.50 on Dec. 18, 2012, the day before the hedge fund giant first publicly disclosed a $1 billion short bet.

The regulatory action impacted shares of other multilevel marketing companies, including Nu Skin Enterprises (NUS), which turned negative after having been up as much as 11.9 percent earlier in the day. Nu Skin was recently trading up 0.78 percent to $73.68.

According to the FTC, a civil investigative demand, or CID, may require the recipient "file written reports or answers to questions." Recipients may file petitions to limit or quash CIDs.

The FTC news comes just days after The New York Times published a lengthy examination of Ackman's campaign to convince regulators to probe Herbalife, action that should help ease his losses on the short bet.

The story recapped Ackman's tireless efforts, including organizing letter-writing campaigns and public demonstrations and even paying nonprofit groups to encourage them to support his efforts. Some people identified as letter writers told the paper they had no recollection of writing about Herbalife.

Ackman declined to comment on the FTC news.

Herbalife Hit with Civil Investigation by FTC

A big, bold "SALE" sign helps get people in the store, where they are likely to buy non-sale items.

Once you enter, there's the shopping cart. This invention was designed in the late 1930s to help customers make larger purchases more easily.

 

In supermarkets, high margin departments like floral and fresh baked goods are placed near the front door, so you encounter them when your cart is empty and your spirits are high.    
Flowers and baked goods also sit near the front of stores because their appealing smell activates your salivary glands, making you more likely to purchase on impulse.

Supermarkets like to hide dairy products and other essentials on the back wall, forcing you to go through the whole store to reach them.

 

    

Once customers start walking through a store's maze of aisles, they are conditioned to walk up and down each one without deviating.

Most stores move customers from right to left. This, combined with the fact that America drives on the right, makes people more likely to purchase items on the right-hand side of the aisle.

Anything a store really wants customers to buy is placed at eye level. Particularly favored items are highlighted at the ends of aisles.
 

There's also kid eye level. This is where stores place toys, games, sugary cereal, candy, and other items a kid will see and beg his parents to buy.
Sample stations and other displays slow you down while exposing you to new products.
Stores also want items to be in easy reach. Research shows that touching items increases the chance of a purchase.

Color affects shoppers, too. People are drawn into stores by warm hues like reds, oranges, and yellows, but once inside cool colors like blues and greens encourage them to spend more.

Hear that music? Studies show that slow music makes people shop leisurely and spend more. Loud music hurries them through the store and doesn't affect sales. Classical music encourages more expensive purchases.
Store size matters, too. In crowded places, people spend less time shopping, make fewer purchases (planned and impulsive), and feel less comfortable
.
Stores not only entice you with sales, they also use limited-time offers to increase your sense of urgency in making a purchase.
The most profitable area of the store is the checkout line. Stores bank on customers succumbing to the candy and magazine racks while they wait.
Finally, there is the ubiquitous "valued shopper" card. This card gives you an occasional deal in exchange for your customer loyalty and valuable personal data.
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