Shopify (NYSE: SHOP) was crushed by allegations it was little more than a get-rich-quick scheme. Shares that had nearly tripled over the past year have tumbled 20% since the critique broke in early October. That naturally leads an investor to wonder whether the e-commerce storefront will overcome these charges and make its stock a buy, or they'll prove true and buying now will be like catching a falling knife.

What we know

Famed short-seller Andrew Left at Citron Research issued a scathing rebuke of Shopify, alleging the platform routinely violates FTC marketing guidelines and was "dirtier" than Herbalife (NYSE: HLF), the multi-level marketing company that was required to pay a $200 million settlement with the regulatory agency.

There are several aspects to Left's accusations. On the one hand, he contends Shopify is violating FTC regulations by promising people if they use its product they could become millionaires. He also says people promoting the service aren't disclosing they're being compensated for their endorsement by the outfit. Although other, larger marketers may also do something similar, it's still an illegal activity, similar to Herbalife, which was slammed by the FTC for advocating "members can 'quit their job' or otherwise enjoy a lavish lifestyle" by using its products. Left says Shopify even has a form letter on its website that platform users can use to send to their bosses when they quit their jobs.

I'm not familiar enough with FTC rules to say whether encouraging entrepreneurs to use your service to become a millionaire is a violation or not, but if it is truly illegal, then it's incumbent on Shopify to change its marketing to comply with the law.

Yet otherwise comparing it to Herbalife seems to fall short, since people aren't directly selling Shopify products like they do with the supplement distributor; users are using its platform to sell their own goods and services (Left does note bloggers and other sites can make money referring people to Shopify, and notes that is akin to affiliate marketing rather than an MLM scheme).

Still a good value?

There appear other, more problematic accusations that Shopify will need to address. The Citron report seemingly has a lot more teeth when it accuses the company of being highly overvalued. At 20 times sales, it is valued about twice as much as other leading SaaS companies like Salesforce.com (NYSE: CRM) and Workday (NASDAQ: WDAY), and Left contends Shopify's far richer than it has any right to be considering there is little known about the vast majority of its purported 500,000 customers.

He also notes that only 50% of Shopify's revenue comes from subscription fees while other, better SaaS businesses are reporting 85% of their revenues come from subscriptions. Left notes Shopify is an $11 billion business trading at nosebleed valuations. He suggests the stock could and should sit at about half its current price and then still have much more room to fall if and when the FTC gets involved.

The dust is still settling

In cases like this there is often a lot of confusion, and Shopify posted a note on its website stating "We vigorously defend our business model and stand resolutely behind our mission and the success of our merchants."

The platform provider does provide its customers with the tools they require to meet the needs of consumers who expect to be able to transact anywhere, anytime, on any device. There's a lot of blowback from analysts and customers to the Citron critique, saying it is way off-base.

With the company reporting earnings at the end of the month, it may be that its actions will end up speaking louder than Left's words. The short-seller has been right on numerous occasions, so you can't dismiss him out of hand, and his points on valuation certainly seem to hold some weight. On that basis alone, I'd caution against jumping into the stock just yet.

More From The Motley Fool

• 5 Expected Social Security Changes in 2018

• Why You're Smart to Buy Shopify Inc. (US) -- Despite Citron's Report

• 6 Years Later, 6 Charts That Show How Far Apple, Inc. Has Come Since Steve Jobs' Passing

• Here's My Top Stock to Buy in October

• 3 Growth Stocks at Deep-Value Prices

• NVIDIA Scores 2 Drone Wins -- Including the AI for an E-Commerce Giant's Delivery Drones

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Shopify and Workday. The Motley Fool recommends Salesforce.com. The Motley Fool has a disclosure policy.