Senator Calls for Inquiry Into Herbalife

Herbalife, the nutritional supplements company that has long been in the crosshairs of a powerful hedge fund manager, is coming under increased scrutiny in Washington.

Senator Edward J. Markey, a Democrat from Massachusetts, sent letters on Thursday to the Securities and Exchange Commission and the Federal Trade Commission urging those agencies to look into the business practices of Herbalife. The senator also wrote to Herbalife’s chief executive, seeking more information about the company.

Herbalife’s stock fell about 13 percent in morning trading on Thursday to around $64 a share. The stock closed at $73.53 on Wednesday.

A multilevel marketing company that sells vitamins and drink mixes through a network of individual distributors, Herbalife came under attack in late 2012 from the hedge fund manager William A. Ackman, who contended that the operation was an abusive pyramid scheme. Mr. Ackman, the head of Pershing Square Capital Management, maintains a large bet against the company’s shares.

The company has forcefully denied Mr. Ackman’s assertions, spending millions of dollars last year on an effort to defend its reputation.

Herbalife’s stock price rose sharply in 2013, as other big investors took the opposite side of Mr. Ackman’s bet, creating hundreds of millions of dollars in paper losses for Mr. Ackman. As part of his campaign against Herbalife, Mr. Ackman has met with regulators to express his belief that the company should be shut down.

Mr. Ackman met with staff of Mr. Markey last fall, but he has not met with the senator himself, a spokeswoman for Mr. Markey said.

In the letters, which are dated Wednesday, Mr. Markey said he had heard complaints about Herbalife from constituents. One family in Norton, Mass., said it lost $130,000, including its entire 401(k), from investing in the company, and that “involvement in Herbalife caused significant stress within their family,” he wrote.

Another resident of Massachusetts said that she was pressured to buy more products to qualify for a higher level in the distribution network, and that “she was encouraged to stay in the program even after she said she wanted out,” Mr. Markey wrote.

“I have seen reports from Massachusetts residents that suggest Herbalife is a pyramid scheme,” wrote Mr. Markey, a member of the Senate committee on commerce, science and transportation.

Representatives of Herbalife, which is based in Los Angeles, did not immediately respond to requests for comment on Thursday.

In the letter to Herbalife’s chief executive, Michael O. Johnson, Mr. Markey included a number of questions about the company’s business, including requests for information that it does not publicly disclose.

“How much profit (net earnings after expenses) can the average distributor expect to make from retailing to non-distributors (i.e. people who are not directly involved in Herbalife themselves)?” Mr. Markey asked.

The letter continued, “What’s the correct number of sales outside the network as a percentage of total sales” for each of the past five years? He asked for information on the sales outside the network measured by product, quantity and dollars.

“There is nothing nutritional about possible pyramid schemes that promise financial benefit but result in economic ruin for vulnerable families,” Mr. Markey said in a statement on Thursday. “I have serious questions about the business practices of Herbalife and their impact on my constituents, and I look forward to receiving responses to my inquiries.”