Herbalife: Too Hot to Handle, Too Cold to Hold
By: John Carney | Senior Editor, CNBC.com
In a sign of how volatile shares of Herbalife have become, the stock fell steeply in Monday trading after the New York Post reported that the company is the subject of a federal investigation.
The Post, a division of News Corp, uncovered this investigation when the Federal Trade Commission responded to a Freedom of Information Act request by the newspaper.
"The FTC redacted some sections, saying it didn't have to divulge 'information obtained by the commission in a law enforcement investigation, whether through compulsory process, or voluntarily ...,'" the New York Post reports. "Other complaints contained a note referring to a 'pending law enforcement action.'"
Quick! Panic! Hit the sell button! Activate the short-sale robots!
Or, better yet, remain calm and carry on. Anyone paying attention to the Herbalife story should have known that there are at least a few official inquiries being conducted around the company. One of the ways regulators decide what to investigate is by opening up the paper and seeing what's making headlines.
Think of the way the Wall Street Journal launched the official probes related to backdating. When a company is publicly accused of fraud, it catches the attention of government officials. Of course, that means someone at the Federal Trade Commission is poking around Herbalife.
Meanwhile, the company said in a statement on Monday that its communications with regulators was nothing more than "voluntary dialogue". Herbalife added that it was "demanding a correction" from the Post.
I don't think those trading shares of Herbalife are particularly surprised by this turn of events. Instead, what we're seeing are a lot of momentum traders prepared to ride good news up and bad news down. This thing runs so hot and cold that the stock seems as likely to burn investors as to cause frostbite.
In other words, we should all just let Ackman and Icahn fight over this thing, and just try to enjoy the show.
Follow me on Twitter @Carney
