Herbalife Ltd. shares soared 21 percent after the company announced talks with the U.S. Federal Trade Commission, a move that could resolve a longstanding dispute over whether it’s a pyramid scheme.
Herbalife, which relies on independent distributors to sell weight-loss shakes and supplements, disclosed in 2014 that it received a civil investigative demand from the FTC related to the company’s marketing practices. The government probe followed allegations from billionaire Bill Ackman, who announced in December 2012 that he was shorting the company and considered it an illegal operation.
“The company is currently in discussions with the FTC regarding a potential resolution of these matters,” Herbalife said in a regulatory filing on Thursday. “The possible range of outcomes include the filing by the FTC of a contested civil complaint, further discussions leading to a settlement which could include a monetary payment and other relief or the closure of these matters without action.”
The announcement stoked investor optimism that Herbalife can overcome the dispute without incurring much further damage. The Los Angeles-based company has waged a three-year battle with Ackman and his hedge fund, Pershing Square Capital Management, which made a $1 billion bet against the nutrition company.
Herbalife rose to $55.15 in New York after the filing was released, marking the biggest single-day increase since July 2014. The stock had been down 15 percent this year through Thursday’s close.
Pershing Square’s campaign against the company has included hiring outside firms to investigate it. Herbalife has repeatedly denied the accusations, but the criticism prompted the FTC to probe the company’s operations. The agency has the authority to sue companies to stop deceptive practices against consumers.
Herbalife said on Thursday that it wasn’t sure the outcome of the FTC investigation might still have “a material adverse impact” on its operations or finances. Justin Cole, a spokesman for the FTC, declined to comment about the investigation.
“The company is cooperating with the investigation and at this time it is difficult to predict the timing, and the likely outcome, of these matters,” Herbalife said.