Shares of Herbalife fell more than 7% when markets opened Thursday after the company disclosed that it had overstated new customer and distributor growth for three quarters of 2015 due to a “database scripting error.”
The nutritional-supplement maker, currently under federal investigation due to allegations of spinning a pyramid scheme, revised growth numbers for “new members” in the last three quarters of 2015 in a regulatory filing yesterday. In some cases, revisions were in the double digits.
Herbalife (HLF) disclosed that in the fourth quarter of 2015, worldwide active new members, excluding China, grew 3.2% rather than 16.7%. The number of U.S. active new members grew 30.7% in the fourth quarter rather than the 71% originally reported on Feb. 25.
“The Company did not discover these errors earlier because it had limited visibility into the likely rate of change in this metric upon its first use. The Company has taken corrective action regarding these issues,” Herbalife stated in the filing. The metric, of active new members was only introduced in the second-quarter of 2015, so the error does not effect its historical financial statements. Herbalife discovered the error on March 1.
Last month, Herbalife shares jumped as much as 17% to $58.20 on news that it was nearing the end of its two-year long federal investigation. Thursday’s loss has barely dented those gains.
The news is likely being received happily by shorts such as billionaire investor Bill Ackman, whose runs Pershing Square. Ackman has been on a crusade against the company for close to four years, and went in when the stock was trading at around $48.58, according to Bloomberg.
But lately, Ackman hasn’t been doing too well on that bet.