SEC accuses two men of insider trading on Herbalife

The Securities and Exchange Commission accused two men of insider trading for acting on advance word that hedge fund manager Bill Ackman planned to bet against nutritional products company Herbalife Ltd.

It’s the latest dramatic turn for the Los Angeles company, which is under federal investigation and has been fighting allegations for nearly two years that it operates an illegal pyramid scheme.

The SEC accused Filip Szymik and Jordan Peixoto of using information obtained from Szymik’s roommate, who was working as an analyst at Ackman’s hedge fund, Pershing Square Management.

In December 2012, Ackman accused Herbalife of operating a pyramid scheme and announced he had bet more than $1 billion that its stock price would fall.

The SEC said Szymik’s roommate gave him advance word of Ackman’s allegations, but warned him not to make any securities trades based on the information.

Szymik told Peixoto about Ackman’s planned attack, the SEC said. Peixoto used the information to buy options that would gain value if Herbalife’s stock price fell. He ended up making $47,100 on the trade, the SEC said.

Ackman did not immediately respond to a request for comment. Herbalife declined comment.

Szymik settled with the SEC and agreed to pay a $47,100 penalty. The case against Peixoto is ongoing.

Sanjay Wadhwa, senior associate director of the SEC’s New York regional office, said Szymik and Peixoto decided to engage in “illicit tipping and trading� ahead of Ackman’s public presentation in 2012. “Today they are being held accountable for those offenses,� Wadhwa said in a statement.

Herbalife sells a line of weight-loss shake mixes, vitamins, protein bars and other products through a network of independent sales people in more than 80 countries. Its sales people profit from sales they make, and from sales of others they recruit into the business.

Ackman has said the business model is illegal because most Herbalife distributors make little or no money while a fortunate few, those at the top of the pyramid, make millions from recruiting new sales people.

After Ackman made the allegations, the Federal Trade Commission, Securities and Exchange Commission, FBI and some state attorneys general opened investigations into Herbalife. No charges have been filed against the company.

Herbalife shares rose 76 cents, or 1.8%, to $43.75, on Tuesday.

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