After a brief respite, short-sellers are piling back into Herbalife.
In the wake of an agreement the dietary supplement firm reached with the Federal Trade Commission, skepticism is rising over whether Herbalife is out of the woods. Traders had been covering their short bets ahead of the ruling released Friday, but are re-establishing their positions, according to financial analytics firm S3 Partners.
"There was apprehension in the shorts, and they were actually closing down their positions in anticipation of the FTC report," said Ihor Dusaniwsky, S3's head of research. "Once that happened, they actually read it and understood what [the report] said, they bounced back."
Initial reports ahead of the official release were that the FTC had cleared Herbalife of being a pyramid. In fact, the report never made that specific distinction, and commission officials sharply criticized the company's business practices.
Herbalife has been in the news thanks largely to a high-profile war that hedge fund manager Bill Ackman has waged against the company. With a billion-dollar short in play, Ackman has contended that the company is engaged in a pyramid scheme where its representatives benefit more from recruiting new distributors than from actual sales.