Alleged fraud at Herbalife- major banks sued by short seller - HLF, BAC, JPM, WFC & MYGN

Northern, WI 03/14/2013 (avauncer) - Carl Icahn, the activist investor and officials of three major U.S banks have been sued by a Herbalife Ltd (NYSE:HLF) short seller. He said that they have been aiding a deceptive pyramid scheme at the company that primarily deals in nutritional products. On Wednesday, a New York lawyer, Daniel Ravicher filed papers. He wants the Manhattan Federal Court to coerce directors and officers at Bank of America Corp (NYSE:BAC), JPMorgan Chase & Co (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) to pull out the $1.2 billion worth of financing that they have in Herbalife Ltd (NYSE:HLF).

Icahn must pay damages

Separately, he has filed another lawsuit in which he has stated that the alleged fraud has been aided by Icahn. He is in a feud with William Ackman, the hedge-fund manager and has amassed close to 16 percent of the company’s stake. Ravicher wants Icahn to divest his stake and pay damages. He went on to say that the motive is not an investment-related one but is laced with revenge. The lawsuits that targeted the Bank of America Corp (NYSE:BAC), JPMorgan Chase & Co (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) named over 50 defendants. These include chief executives Jamis Dimon, Brian Moynihan and John Stumpf.

Breach of duty

Ravicher said that the defendants owe a financial duty to him as he is a shareholder of the company. He went to say that their refusal to withdraw from Herbalife Ltd (NYSE:HLF) financing is a breach of that duty. He said that this automatically exposes all these banks to risks of civil and criminal liability. Ravicher’s position in Herbalife is a very short one just as Ackman’s is. He has also bet that the company share price will fall. The lawyer said that in this short position, he had lost over $75,000 and this had begun around the same time that Ackman had announced that he would be shorting the stock.

This had taken place in December. Close to $1 billion has been bet by Ackman against Herbalife Ltd (NYSE:HLF). His argument is that the so-called business model is just a pyramid scheme that happens to be well-managed. Icahn supports Herbalife and has called it a good company that runs on a good management. There are chances that Icahn will be raising his stakes in the company and take it to 25 percent. All the banks had no immediate comments to make on the lawsuit.

Shares of Herbalife Ltd (NYSE:HLF) went down by 3.62% to close at $38.92

Shares of Bank of America Corp (NYSE:BAC) went up by 0.42% to close at $12.06

Shares of JPMorgan Chase & Co (NYSE:JPM) went down by 0.24% to close at $50.16

Shares of Wells Fargo & Co (NYSE:WFC) went up by 0.30% to close at $36.77

Shares of Myriad Genetics, Inc (NASDAQ:MYGN) went up by 4.89% to close at $25.85