Herbalife’s (NYSE: HLF) shares increased over 11 percent in early trading Friday after disclosing that it had advanced talks with the Federal Trade Commission regarding the investigation of whether it has a pyramid scheme.
Shares of Herbalife on Friday increased from $6.54 to $64.86, surged around 11 percent. The company’s Q1 financial reports, with adjusted earning of $1.36 per share and sales of $1.12 billion, also beat expectations.
Herballife Ltd. is a nutritional supplement marketer company, developing and selling weight management, healthy meals and snacks, and personal care products. The company has been investigated by FTC for the past two years of whether it is running an illegal pyramid scheme.
Bill Ackman, a hedge fund investor, who leads Pershing Square Capital Management LP, accused Herballife of running the pyramid scheme since the end of 2012. Ackman said that Herballife made money by hiring people and selling their stakes instead of selling the product itself. Herballife denied the accuse and said that it is confident in its business model.
The possible settlement with FTC is expected to include “injunctive and other relief as well as a monetary payment with our best estimate of a payment being $200 million,”
Herballife said in a regulatory filing.
“While there are a number of open issues, these discussions have progressed to an advanced stage, and the range of outcomes now includes litigation or settlement.” Herbalife CEO and Chairman Michael Johnson said on Thursday. “We don’t yet have an agreement. What we have is the reasonable possibility of an agreement.” Herbalife CFO John DeSimone said.
The company also said that if talks break down, a legal fight is likely to happen.