Herbalife Probed by US Regulators Over 'Pyramid Scheme'

US-based supplements and weight loss products maker Herbalife is being probed by the Federal Trade Commission (FTC) for alleged deceptive practices in its multi-level marketing model.

The company said it received a civil investigative demand from the FTC, adding that it will fully co-operate with the investigation.

"Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace, and will cooperate fully with the FTC. We are confident that Herbalife is in compliance with all applicable laws and regulations," the company said in a statement.

"Herbalife is a financially strong and successful company, having created meaningful value for shareholders, significant opportunities for distributors and positively impacted the lives and health of its consumers for over 34 years."

Following the announcement, the company's shares fell about 13% on Wall Street.

The probe against the company comes after a year of intense scrutiny of the company, which sells nutritional shakes and supplements via multi-level marketing involving a network of millions of independent distributors in more than 80 countries worldwide.

A source familiar with the probe told CNBC that Herbalife was surprised by the investigation but thought it was the best way to combat allegations about the company's business model. The probe is expected to last a year or more.

Bill Ackman's Gamble

Activist investor Bill Ackman's hedge fund Pershing Square has been targeting the company in a short-sale campaign, gambling more than $1bn (£602m, €721m) on the prospect that Herbalife would fail because it is operating as an illegal pyramid scheme.

Since December 2012, Ackman has spent millions of dollars in a public campaign against Herbalife, accusing the company of making most of its money by recruiting new distributors rather than selling products. He has gathered lobbyists, community organisers and members of Congress to push regulators to probe the company.

Herbalife has refuted the claim, saying that Ackman's attack on the company is "unfounded, relentless and fraudulent".

"Ackman's unprecedented campaign to destroy Herbalife has now been exposed for what it is: a cynical, self-serving attempt to manipulate the market by buying his way into an investigation to cover his own reckless $1bn dollar bet," the company earlier said in a response to a New York Times report.

Los Angeles-based Herbalife uses multi-level marketing to sell its nutritional supplements and weight-loss products. Companies such as Amway, cosmetics companies Avon and Mary Kay and kitchen products maker Tupperware, use a similar strategy of marketing products through independent contractors.