A senator has called for a probe into Herbalife Ltd.'s business practices after billionaire investor William Ackman accused the nutrition company in 2012 of running a pyramid scheme.
Herbalife shares tumbled more than 14 percent after Massachusetts Sen. Edward Markey, a Democrat, said he had written to the U.S. Securities and Exchange Commission (SEC), the Federal Trade Commission (FTC), and to Herbalife itself to try to obtain more information, Reuters reported.
"There is nothing nutritional about possible pyramid schemes that promise financial benefit but result in economic ruin for vulnerable families," Markey, a member of the Commerce, Science and Transportation Committee, said in a press release. He said the call for a probe followed "serious complaints of improper pressure and financial hardship" from constituents.
Urgent: Do You Approve Or Disapprove of President Obama's Job Performance? Vote Now in Urgent Poll
Herbalife spokeswoman Barbara Henderson said the company had received the letter and looks "forward to an opportunity to introduce the company to him and address his concerns at his earliest convenience."
It was the second big hit to Herbalife's stock so far this year. Last week, shares tumbled 10 percent on the heels of a regulatory probe in China into skincare products maker Nu Skin, which has a similar business model to Herbalife.
The battle for the future of Herbalife has been raging for over a year after prominent activist investor Ackman accused the company of running a pyramid scheme — an unsustainable business model that focuses more on recruiting salespeople than on selling to outside customers.
Herbalife has vehemently denied the accusations.
Ackman backed his accusation with a $1 billion short bet that the company's share price would drop to zero under regulatory scrutiny, and began approaching lawmakers and regulators with his evidence.
Since then, major investors including Carl Icahn have lined up against Ackman's bet by taking stakes in the company, making Herbalife shares some of the most closely watched on Wall Street. The stock price surged 139 percent in 2013, but has fallen a total of 16.6 percent so far this year.
S&P Capital IQ analyst Tom Graves lowered the company's 12-month target price to $65 from $75 "to reflect our view of increased risk, after U.S. Senator Edward Markey seeks an SEC and FTC investigation."
Ackman and Icahn were not available for comment.
An FTC official was not immediately available to answer questions on Herbalife. An SEC spokeswoman declined to comment.
The SEC has in recent years routinely reviewed Herbalife's public disclosures and requested additional information, including on how its distribution network is organized, and more recently on its relationship with Icahn.
Markey wrote in the letters that his interest in Herbalife was sparked by constituents in Massachusetts who claim to have lost thousands of dollars buying supplies that they could not sell on to customers. He said one family in Norton said it lost $130,000, including its entire 401(k) retirement account, from investing with the company.
Another woman said she was pressured to recruit family members and spend more money to buy more products so that she could qualify as a "supervisor" in the Herbalife system, according to the press release.
Markey's staffers met with Ackman in Washington a few months ago, but the Senator has not met the hedge fund manager personally, a spokeswoman said.
"Herbalife may be a purveyor of health and wellness products, but some of its distributors are suffering serious economic ill-health as a result of their involvement in the company. I have serious questions about the business practices of Herbalife and their impact on my constituents, and I look forward to receiving responses to my inquiries," he said in the press release.
Markey asked that the SEC, FTC, and Herbalife respond to his staff by February 28.
In Markey's letters to SEC Chair Mary Jo White and FTC Chair Edith Ramirez he said he wanted regulators to "confirm that the company is acting in accordance with the federal securities laws under the authority of the Commission."
Markey has also asked Herbalife to say whether or not it is targeting minority communities.
Markey's move comes after Nevada's State Senate Majority Leader Mo Denis in December asked his state's attorney general for an investigation into the supplement maker for alleged targeting and deception of Hispanics.
Latino civil rights activists have also asked prosecutors in California and Illinois to probe the company's marketing practices. On Friday the League of United Latin American Citizens will be meeting with members of the California attorney general's office to lay out their case in person, Brent Wilkes, the group's national executive director said.
Editor's Note: Do You Support Obamacare? Vote in Urgent National Poll
© 2015 Newsmax. All rights reserved.