The Morning Brief: Justice and FBI Reportedly Open Herbalife Probe; Stock Falls

The Department of Justice and the Federal Bureau of Investigation have launched an investigation of Herbalife, according to the Financial Times, citing people familiar with the matter. It stresses that the probe may not lead to any charges and that Herbalife has not been accused of any wrongdoing. Still, news of the investigation spooked the stock, which fell more than 14 percent, to $51.25, on a big down day for speculative stocks in general. Of course, the multi-level marketer of nutrition products has been the target of a big negative bet by hedge fund Pershing Square Capital Management, which has made a big, public case for the company being a Ponzi scheme. One of its biggest boosters is Carl Icahn. In a statement, Herbalife said: “We have no knowledge of any ongoing investigation by the DOJ or the FBI, and we have not received any formal nor informal request for information from either agency. We take our public disclosure obligations very seriously. Herbalife does not intend to make any additional comments regarding this matter unless and until there are material developments." Shares of Nu Skin Enterprises, the multi-level marketer whose recruiting and selling practices are being investigated by China, fell about 3.56 percent on Friday, apparently being dragged down by the Herbalife report.

Jana Partners sold 725,000 shares of Outerwall for prices ranging from $71.25 to $71.72, reducing its stake to 4.9 percent. The sales took place between April 1 and April 8. In a regulatory filing, the New York activist investor said it reduced its stake “through regular portfolio management activities," adding it is “highly supportive of the recent steps taken” by the company’s board and management, in particular “improving capital allocation discipline, increasing its return of capital to shareholders, and driving cost efficiencies." Outerwall, best known for the Redbox movie rental kiosks that have blanketed the country, recently purchased $371 million of its stock in a Dutch auction, or 20.6 percent of its outstanding shares.

The Alternative Investment Management Association, a global hedge fund trade association, named three new directors to its global Council, its governing body. They are Simon Lorne, vice chairman and chief legal officer of Millennium Management; Tim O’Brien, partner, general counsel and CCO of Pine River Capital Management; and Stuart Fiertz, president and co-founder of Cheyne Capital Management.

SS&C Technologies says its SS&C GlobeOp Hedge Fund Performance Index lost 1.03 percent in March. It also said hedge fund flows as measured by the SS&C GlobeOp Capital Movement Index declined 0.48 percent in April. “Although net flows were slightly negative for the month, overall capital activity was up, with subscriptions reaching a 15 month high," said Bill Stone, chairman and CEO, in a press release.

Family Dollar Stores announced that it will close about 370 stores, or about 4.6 percent of its total. The discounter’s two biggest shareholders are Paulson & Co., with 8.58 percent of the shares, and Trian Fund Management (7.35 percent). The stock fell about 1.9 percent on Friday.