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shortzilla | what goes up must come down
Company: Herbalife Ltd. | Ticker: HLF
Recommendation: Strong Sell
Price: $39.74
Target Range: $4 to $8
Shares Outstanding: 108 Million
Market Cap: $4.7 Billion
Short Interest as % of Float: 35%
Did Herbalife Repurchase Shares While in Possession of Material Non-Public Information?
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February 19th, 2013
On January 10, 2013 Herbalife held a conference for the purpose of rebutting Pershing Square’s allegation that Herbalife is a pyramid scheme.
In the January 10th presentation (immediately preceding the Q&A section of the presentation) Amy Greene stated the following:
Before we open for Q & A I just want to make one statement to you all. Herbalife is a company, as I’ve said before, that strives for transparency and as such we would like to comment on a recent news article. We contacted regulators in connection with the current situation and beyond that we will have no additional comment.
It is noteworthy that Green omitted the identities of the regulators (note the statement was that Herbalife contacted “regulators” as opposed to a regulator). Also, Green omitted the material fact (as revealed February 19, 2013 when Herbalife filed and published it 10K 2012) that “the SEC’s Division of Enforcement…requested information regarding the Company’s business and financial operations” until it filed and published its 10K 2012.
On February 19, 2013 Herbalife filed and published its 10-K for year ending December 31, 2012. Item 1A (RISK FACTORS) begins on page 25 and concludes on page 44. Slipped into this section, on page 30, is the following:
From time to time, we receive inquiries from various government authorities requesting information form the Company. Following December 2012 market events and a subsequent meeting we requested with the staff of the SEC’s Division of Enforcement, the staff requested information regarding the Company’s business and financial operations. Consistent with its policies, the Company is and will fully corporate with these inquiries. (Emphasis added)
From the unknown date that the SEC requested information regarding Herbalife’s business and financial operations until Herbalife revealed this material fact in its 10-K 2012 on February 19, 2013; Herbalife was in possession of material non-public information.
On February 19, 2013 Herbalife issued a press release which included its admission that Herbalife “Repurchased 4.0 million shares of stock since December 31, 2012”.
If Herbalife repurchased the (or any portion of the) 4 million shares of HLF stock after the SEC “requested information regarding the Company’s business and financial operations” –Herbalife repurchased such shares while in possession of material non-public information.
It is difficult to imagine an event more material to investors then the SEC opening an inquiry into both Herbalife’s business and financial practices. While many have focuses on the probabilities of an FTC investigation, we have long stressed that the company’s fate may in fact lie in the hands of the SEC. Herbalife’s latest actions will only add fuel to the fire for the SEC. We can’t predict the outcome of the SEC’s latest requests for Herbalife, yet there’s a good chance they won’t like what they see.