Federal Judge says company “openly disclosed” its risk.
A federal judge has dismissed a lawsuit accusing Herbalife Ltd. and its chief executive officer of misrepresenting the weight-loss and nutritional products maker’s sales practices as legitimate when the company was “at its core” a pyramid scheme. According to this article from Reuters:
“Herbalife Ltd. HLF.N won the dismissal of a lawsuit that claimed the maker of weight-loss and nutritional products fraudulently portrayed itself as a legitimate company, and that shareholders lost money because it was actually an illegal pyramid scheme.
U.S. District Judge Dale Fischer in Los Angeles said that shareholders led by two pension funds did not show that questions raised about Herbalife’s business by hedge fund manager William Ackman and various investigators showed that the company had fraudulently inflated its stock price.
Ackman and his Pershing Square Capital Management LP have campaigned against Herbalife since December 2012, when they revealed a $1 billion bet against the Los Angeles-based company. Herbalife has long denied it is a pyramid scheme.
Herbalife shares were up 9.4 percent at $37.68 on Wednesday afternoon after rising as much as 14 percent earlier in the session. They remain well below their January 2014 peak above $83.
Fischer on Monday rejected claims in the proposed class action that news about concerns from Massachusetts Senator Edward Markey, a Federal Trade Commission probe, weak quarterly results, and even questions raised by Ackman and hedge fund manager David Einhorn were “corrective disclosures” that revealed Herbalife’s fraud.”
Our opinion? This is a huge first step in moving the industry ahead and warning the short sellers to stay away from direct sellers. The next step is a favorable Federal Trade Commission (FTC) ruling!
To continue reading the full article from Reuters, click here.