NEW YORK — Hedge fund manager Bill Ackman has won a round in his 15-month fight against supplements and weight-loss products maker Herbalife. The direct seller’s shares tumbled Wednesday after Herbalife revealed that it is being investigated by the Federal Trade Commission for possible “deceptive practices.”

Since December 2012 Ackman has spent millions waging a public campaign against Herbalife and building up an army of lobbyists, community organizers and members of Congress to push regulators to investigate what he calls a “pyramid scheme,” that makes most of its money by recruiting new salespeople rather than on the products they sell. It is a charge that Herbalife has repeatedly denied.

Ackman, the head of Pershing Square Capital Management, holds a whopping $1 billion “short” position in Herbalife, meaning he’s bet that the company’s stock will drop and profits when it does. While short sellers are sometimes demonized for profiting at another’s financial pain, they can play an important role in discovering problems with companies. Hedge fund manager David Einhorn of Greenlight Capital took out a massive bet against Lehman Brothers in 2007, accusing the investment bank of not disclosing all of its potential losses from the housing market downturn. That bet turned out to be right. Lehman filed for bankruptcy in September 2008, sparking the financial crisis.

So far Ackman’s campaign has had mixed success. The SEC began conducting its own investigation into Herbalife shortly after Ackman’s initial accusations, but so far it hasn’t led to any enforcement action.

The FTC news dinged shares 7 percent on Wednesday, as the stock closed down $4.82 at $60.57. But shares are still up 46 percent since December 2012.

Herbalife said Wednesday that it believes it complies with all laws and regulations and plans to cooperate fully with the FTC.

Copy the Story Link