Sucking the Life Out of Herbalife Ltd. (HLF)

Yet when the FTC moved in and closed down a different MLM scheme last week, Herbalife’s stock has turned tail, falling 20% in the week because it hit so close to home. Echoing another of Ackman’s charges against Herbalife, Fortune Hi-Tech Marketing is accused of misrepresenting the business opportunity the scheme presented. Rather than fabulous wealth, distributors often found themselves up to their eyeballs in debt.

Other multi-level marketing companies are also finding it hard to remain buoyant, with Nu-Skin down 8%, USANA Health Sciences, Inc. (NYSE:USNA) down 7%, and Medifast, Inc. (NYSE:MED) tumbling 12%. Tupperware’s stock, in contrast, is up 10% over the past week.

A distinction without a difference?
A law enforcement investigation doesn’t have to mean criminality, though investors aren’t parsing the difference right now, having sold off the stock in early morning trading.

With inquiries coming from all sides now — the SEC, the FTC, and now law enforcement — it’s probably wise to stand on the sidelines and watch the drama unfold. Let the Ackmans, Icahns, and Loebs go at it as they’ve got money to burn if their bets are wrong. For the average investor, letting Herbalife exorcise its demons first is a more prudent course of action. You may not get in at the absolute bottom, but it also prevents your portfolio from getting handcuffed because you moved too early on a stock that turned out to be possessed.

The article Sucking the Life Out of Herbalife originally appeared on Fool.com and is written by Rich Duprey.

Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of Tupperware Brands (NYSE:TUP) and has the following options: Long Jan 2014 $50 Calls on Herbalife Ltd. (NYSE:HLF).

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