Comment on the false New York Post story about the law enforcement investigation against Hebalife

About twenty four hours ago I was alerted to a story in the New York Post by Michelle Celarier asserting that Herbalife was the subject of an enforcement action. To quote:

The Los Angeles-based distributor of nutritional products is the subject of a law enforcement investigation, The Post has learned. 

The existence of the probe emerged after the Federal Trade Commission, responding to a Freedom of Information Act request by The Post, released 192 complaints filed against Herbalife over the past seven years. 

The FTC redacted some sections, saying it didn’t have to divulge “information obtained by the commission in a law enforcement investigation, whether through compulsory process, or voluntarily ...”

This story was false. But lets go to the original source - the information released by the Federal Trade Commission (FTC).

The key document - the source of the New York Post story - was on page 719 of 720. Here it is the key bit - a photograph:

To quote directly:

We have located 717 pages of responsive records. I am granting partial access to, and am enclosing copies of, the accessible records. Fifteen pages, and portions of other pages, are subject to two of the nine exemptions to the FOIA's disclosure requirements, as disclosed below. 

I am withholding 15 responsive pages which are exempt from disclosure under the FOIA Exemption 3, 5 U.S.C 552(b)(3), because they are exempt from disclosure by another statute. Specifically, Section 21(f) of the FTC Act provides that information obtained by the Commission in a law enforcement investigation, whether through compulsory process, or voluntarily in lieu of such process, is exempt from disclosure...

The FTC found 717 pages of responsive records. It withheld 15 pages because they were exempt from disclosure because they were found pursuant to a law enforcement investigation.

On this flimsy evidence and no more the New York Post concluded that Herbalife was itself subject to a law enforcement investigation.

The text says nothing of the sort.

Indeed the text proves comprehensively that Herbalife is not subject to a law enforcement investigation.

The way you see that is obvious. When the government asks for documents using a subpoena or the threat of subpoena how many documents do you think you supply? The usual story is truck-loads. Fifteen hundred pages of documents would be typical in a very minor case. Fifteen thousand pages would be more typical. 15 truck loads is not unknown. Discovery is very expensive.

The fact there were only 15 pages of documents gives you the answer you need. These documents may have been found subject to a law enforcement investigation but the law enforcement investigation was not against Herbalife and fifteen pages of documents came out as a by-product.

This was obvious enough to anyone who thought about it - and I purchased the stock for the bounce.

Michelle Celarier - the New York Post journalist - made an amateur mistake driven by simple failure at reading comprehension.

We all make those. Lord knows I have made mistakes. (And when I make them my clients lose money...)

But that is not how Michelle Celarier sees it. She blames the FTC language for her mistake rather than herself. Panicked investors, now wearing an unnecessary loss, might not be feeling quite so charitable towards Michelle and the Post - which I hasten to add is in many other respects a surprisingly fine paper.

John