Business

Herbalife must redo books in KPMG scandal

Herbalife, the controversial nutritional supplements company, will have to redo its books for the past three years after its auditor was ensnared in an insider-trading scandal.

Shares were halted for two hours this morning and then fell on heavy volume when trading resumed. At 2 p.m., they were down 4% at $36.86.

KPMG said late last night that an unnamed partner in charge of its LA office had provided inside tips about its clients to someone who had traded on the information.

According to sources, the clients turned out to be LA-based Herbalife and shoe company Sketchers, whose stock was also halted before both companies confirmed KPMG had resigned as their auditor.

As a result, Herbalife said its financial statements for the past three years will have to be re-audited. The old numbers “can no longer be relied upon,” it added.

The company will have to find a new auditor, just weeks before its annual meeting on April 25. It is unlikely to have new audited results by then, according to an individual familiar with the firm.

Hedge fund activist Bill Ackman, ¬who has a $1 billion short position on Herbalife and has called it a “pyramid scheme,” earlier this year challenged KPMG regarding its work for the company. “If I were KPMG, I¹d take a very, very careful look at that financial statement before I slap my brand on it,” he said at the time.

The party who received the inside information was not named, but sources said there was no connection to Herbalife, Ackman or Carl Icahn, the Ackman foe who has built a 15 percent stake in the company.

DA Davidson analyst Tim Ramey — a longtime bull on Herbalife — downgraded the stock.

Skechers, which was also affected by KPMG’s scandal, rose 2.7 percent to $22.09.