The U.S. Securities and Exchange Commission (SEC) has reportedly sued two individuals alleging that one of them capitalized on an insider tip that billionaire hedge fund manager William Ackman would bet against Herbalife in December 2012, attacking its business model as a pyramid scheme, and also bet that Herbalife stocks would fall, which they did, thus making a profit. The junior analyst responsible for the insider tip worked at Ackman’s Pershing Square hedge fund; he has not been accused of wrongdoing, and he claims that his departure from Pershing was unrelated to the SEC investigation. His roommate and childhood friend, one of the alleged inside traders, has reportedly agreed to a $47,100 penalty, the amount that another friend, who traded on the information, apparently earned when Herbalife stock fell 39 percent.

Meanwhile, Ackman has apparently begun to see the fruits of his campaign against Herbalife. Since the U.S. Federal Trade Commission launched a formal investigation into the company this past winter, its stocks have lost significant value—falling nearly 50 percent this year. The New York Times put the penalty paid by one of the inside traders in the context of the “billion-dollar battle over Herbalife that has divided Wall Street. On one side is Mr. Ackman, who has staked his reputation on a belief that Herbalife is a pyramid scheme. The other group, led by the hedge fund magnate Carl C. Icahn, expects the company to emerge from regulatory scrutiny unscathed.” Additional details about the controversy and federal government’s interest in the dietary supplement company appear in Issue 19 of this Report. See The Wall Street Journal, September 22, 2014; The New York Post and The New York Times, September 30, 2014.