10/10 Research Claims Herbalife May Be Attached To Brazilian Money-Laundering Complaint

An unsubstantiated post about Herbalife Ltd. HLF alleged the company could be in deep trouble for money-laundering and drug trade.

In a post on Zero Hedge, user 10/10 Research said critics have been charging Herbalife for years of having a fraud layer akin to a pyramid scheme. The research noted a fresh layer of allegations, although it needs to be substantiated.

The report indicated that Herbalife's success has allowed it to amass undocumented trades at more than 40,000 clubs between Mexico and Colombia through the easy procedure of signing a distributorship. It would not be a difficult task to set up a fake account with a main distributor "giving the cash a chain of individuals to work its way up and through." For its part, the top distributor uses "cash purchases" of product under the firm to accumulate recruiting rewards.

Related Link: Carl Icahn On CNBC, "I Do Think Herbalife Could Be The Mother Of All Short Squeezes"

If report is true, 40–60 percent of cash used by such distributors could be returned to them. The charge of money laundering comes into the picture because the company recognizes revenue in local currencies while paying the distributors in U.S. dollars.

Interestingly, Pivotal analyst Tim Ramey responded to 10/10 claims against Herbalife by tell Benzinga, "[I]t is preposterous to believe that HLF is in any way linked to money laundering or drug smuggling. "The analyst concluded, "Could one of their distributors have done this in the ancient past? Sure."

At last check, the stock was down 1.44 percent at $61.69.

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