Herbalife Ltd. tumbled after saying it overstated the growth of its customer and distributor base, bringing another headache to a company facing a federal investigation into whether it’s a pyramid scheme.
A metric called active sign ups increased 3.2 per cent worldwide in the fourth quarter from the year earlier, not the 16.7 per cent cited on the Feb. 25 business call, the Los Angeles-based company said inside a regulatory filing Thursday. U.S. active sign ups increased 30.7 per cent, not the 71 per cent mentioned around the call, Herbalife said. Those were among more than 24 cases of misstated statistics, based on the filing.
The shares fell 7 per cent to US$52.42 in the close in New York, the biggest drop since Oct. 7. The stock is now down 2.2 per cent this season.
The announcement may embolden Bill Ackman of Pershing Square Capital Management, who’s shorting the company’s shares and says it’s an unlawful pyramid scheme. Herbalife said it discovered the incorrect information, which resulted from database errors, on March 1. The organization began tracking the metric this past year regarding the alterations in its marketing plan and first reported the estimate its second-quarter 2015 earnings call. Herbalife said hello didn’t spot the errors sooner because “it had limited visibility into the likely rate of change in this metric upon first use.”