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Bill Ackman, founder and chief executive officer of Pershing Square Capital Management LP.

Scott Eells/Bloomberg

Federal officials are investigating possible manipulation of Herbalife Ltd. stock by fund manager Bill Ackman and people working for him in a long-running probe of the dietary supplement maker, a person familiar with the matter said.

U.S. prosecutors in New York and the FBI, in addition to the Federal Trade Commission, have been looking into the company's marketing practices. Billionaire Ackman, head of Pershing Square Capital Management LP, accused Herbalife of misleading distributors, misrepresenting sales and selling a commodity product at inflated prices. His fund bet $1 billion against Herbalife's shares.

Herbalife has lost about half its value over the past year, hurt by the FTC investigation. Ackman says Herbalife's reliance on independent distributors for its nutrition products constitutes an illegal pyramid scheme.

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While Herbalife has repeatedly denied the allegation, the probe has added pressure on the business to adopt more conservative sales practices.

Jim Margolin, a spokesman for Manhattan U.S. Attorney Preet Bharara, declined to comment on whether there was a probe. Chris Sinos, a Federal Bureau of Investigation spokesman, also declined to comment on it.

The investigation also covers Herbalife's marketing practices and is ongoing, said the person familiar with the matter, who asked not to be identified because it isn't public.

The FBI is investigating a consultant hired by Pershing and whether they made false statements to regulators, said two people familiar with the matter. Ackman and Pershing Square haven't been served with a subpoena, one of the people said.

'Pervasive Victimization'

Herbalife's business can't survive, Pershing Square said in an e-mailed statement. More than 1,000 U.S. victims have come forward, it claimed.

"We are proud of our work over the past two years exposing the pervasive victimization by Herbalife of millions of people and would welcome any scrutiny of those efforts," the fund said. "We have been completely transparent about our position and our research, and we have acted lawfully in every respect."

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Herbalife has spent more than a year denying Ackman's accusations. In that time, the company has won allies including billionaire Carl Icahn, who has become its largest shareholder.

Herbalife said Thursday in a statement it was confident in the strong fundamentals of its business model.

"Ackman has a $1 billion bet against Herbalife and a direct financial interest in hurting our company," Alan Hoffman, a spokesman for the Los Angeles-based company, said in the statement. "For more than two years, he has spent over $75 million orchestrating a false and fabricated attack against Herbalife, all in an effort to enrich himself."

The Wall Street Journal reported earlier on the investigation's focus on Ackman.

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