Nasdaq darling Lululemon in hot water over seaweed T-shirts

A company selling a range of sportswear made from seaweed has been one of the hottest properties on the Nasdaq stock market since its flotation in July, but a sceptical hedge fund smelt something fishy.

Lululemon Athletica, a little company set up in the back of a Vancouver yoga studio nine years ago, was yesterday facing accusations of false advertising, after the anonymous hedge fund's laboratory tests found that the company's products were not all that they appeared.

Never mind whether or not seaweed fibres can really "release amino acids, vitamins and minerals into the skin" as you sweat through your yoga work-out. The lab tests in fact showed the $50 (£24) T-shirts claiming to be made from 24 per cent Irish seaweed contained not even a small rockpool-worth of the stuff. Nothing. The results were handed to The New York Times, which confirmed them in independent tests of its own, and the resulting stink sent Lululemon shares plunging 9 per cent at their worst yesterday. Fans of the company immediately piled into the stock, however, and it closed up 79 cents at $44.29.

The company's founder, Chip Wilson, who turned to yoga after 20 years in the snowboarding and surfing industry, was confronted with the results by journalists and said he could not dispute them. He blamed his European supplier. "If you actually put it on and wear it, it is different from cotton," he said. "That's my only test of it."

The company did not return calls seeking further comment yesterday.

Lululemon has become one of the fastest-growing names in sportswear, largely through the enthusiasm of local fitness instructors recruited as "ambassadors" for its unconventional range of organic clothing.

Outfits are made with materials such as charcoal, silver and coconut, many trumpeting claims about their environmental sustainability and their anti-microbial properties.

With the number of Lulu-lemon retail outlets at 57 and growing, the company went public on the Nasdaq stock market in July and has been a favourite of small-cap punters ever since. The stock debuted at $25 and quickly shot to $60.