Herbalife has become one of the most famous companies due to a big battle between two hedge fund giants, Carl Icahn and Bill Ackman.

However, a disturbing incident took place this week with the company stock, which likely involves neither the men nor the company itself.

On Monday, shares of Herbalife soared more than 11 percent on no news. For a penny stock this might be the norm, but for a company with a $5 billion value, this was highly unusual.

Many suspected that Herbalife shares might be experiencing a short squeeze. A short squeeze occurs sometimes with stocks that have many shares shorted (such as Herbalife), which forces the price to soar. However, "experts" were scratching their head as to why this occurred all of the sudden.

Even if this seemed true on Monday, on Tuesday this theory was proven false. Herbalife shares were briefly suspended from trading on the New York Stock Exchange. The company announced that it had a new auditor (the prior auditor had resigned over insider trading unrelated to the company). Shares resumed trading and were up over 2 percent in the Tuesday trading session.

After this incident there is little doubt that insiders got word of this development and bought stock on Monday. They likely proceeded to sell the stock on Tuesday to investors who, after hearing the news, purchased shares. I suspected insider trading on Monday, but also thought the Securities and Exchange Commission (SEC) would act quickly based on this news.

In prior articles, I have discussed the SEC and the ineffectiveness of the agency. While the SEC complains they do not have enough money, they also waste resources and do not focus on catching the big fish. This is perfectly demonstrated by the incident that took place earlier this week.

Herbalife shares soared and many people who bought shares likely found out ahead of time that there would be a big announcement on Tuesday. The inside trading could be anyone, such as the friend of an auditor at the new firm, KPMG, or a cousin of someone who overheard the news.

Who acted on this information is unclear. However, it would be extremely easy for the SEC to find out who did. All they would have to do is look at trades of shares that took place on Monday and then see who has connections to people with the information released Tuesday.

This is not a case of the SEC lacking resources. The SEC complains it is difficult to regulate thousands of entities and uncover sophisticated fraudulent scams. In this case, it is almost certain fraud was committed and the date when it occurred is clear. The only question is who, and they have the authority and capability to find this out quickly.

The SEC has been dealt a black eye due to many scandals they have missed. If they cannot catch something so obvious they deserve the awful reputation which they have.