Herbalife must also pay for an Independent Compliance Auditor (ICA) who will monitor its adherence to the FTC’s order provisions requiring the restructuring of its compensation plan.
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The compensation structure, in particular, needs to be remodeled to make sure that the company no longer rewards distributors to recruit others and help advance the marketing program instead of working to enhance retail demand of its merchandise.
However, the filing said more than half of the company’s sales leaders received less than $300 in reward payments during 2104.
Herbalife agreed to pay $200 million to resolve allegations that the Los Angeles-based company duped consumers into believing that they could make substantial profits from selling the company’s diet and nutritional supplements.
Herbalife said: “We announced a settlement with the FTC that does not change our direct selling business model and will set new standards for the industry”.
The settlement, which calls for broad changes to Herbalife’s direct marketing program, contains no admission of wrongdoing and the company said in a press release that it believed numerous allegations by regulators were “factually incorrect”. The company also struck a separate settlement with the Illinois Attorney General, in which it would pay $3 million. The settlement “specifically prohibits Herbalife from claiming that members can “quit their job” or otherwise enjoy a lavish lifestyle”, according to the FTC statement.
Though Herbalife was ordered to restructure its USA operations and pay a $200 million settlement Friday, it avoided being classified by the U.S.as a pyramid scheme. Icahn, who now owns an 18 percent stake in the company, issued a statement in conjunction with Herbalife expressing continued confidence in the diet and nutrition supplement company and its leadership.
Bill Ackman, who leads Pershing Chief Square Capital Management, suffered a great loss due to the settlement.
The media loves to cover the drama between long-term high-profile Herbalife bull Carl Icahn and Ackman, who made a $1 billion short bet on Herbalife back in 2012 starting at around $47 per share.
In reality, the “overwhelming majority” of distributors earn “little or no money”, according to the FTC.
Herbalife Ltd.is a global nutrition company.
Federal regulators closed an investigation of the multinational, nutritional supplements company Herbalife, which has for years been dogged by accusations that it was run as an elaborate pyramid scheme.
“We focus less on the label than on making sure the facts in the complaint alleged what we considered to be the core problem in Herbalife’s business practices”.
Potential difficulties in implementing the changes lie in how the company will differentiate between different classes of buyers: those who buy for personal use, or to distribute; and how to define what constitutes a “legitimate end-user”, FitzPatrick said.
Herbalife has become a proxy battlefield for major Wall Street players taking opposing sides, some shorting the company’s stock believing it would collapse, while others bought huge caches of Herbalife shares.
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Pershing Square is down 19.1 percent this year through July 12.
