Ackman’s allegations that the Herbalife was a pyramid scheme helped kicked off the FTC investigation and he made several high-profile bets shorting the company’s stock.
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WASHINGTON/NEW YORK-Herbalife Ltd. agreed to pay $200 million and change the way it does business to avoid being labeled a pyramid scheme by regulators, a blow to hedge fund manager Bill Ackman who for years has been betting against the dietary supplements maker.
Washington, D.C. -Herbalife International of America, Inc., Herbalife International, Inc., and Herbalife, Ltd. plan to restructure their USA business as part of a Federal Trade Commission (FTC) settlement.
In a statement, Herbalife described the FTC allegations as “factually incorrect”, but said the company wished to “move forward” after two years of investigation.
Herbalife and the Federal Trade Commission (FTC) have come to an agreement.
The FTC filed a complaint accusing the company of deceiving consumers about how much money they could make selling its products, noting that most Herbalife distributors make no money at all.
Under the IL agreement, Herbalife, which sells global nutrition and weight management products, must pay an additional $3 million in restitution to affected IL members who joined Herbalife from 2009 through the present.
For example, events held by the company, which required an admission fee or a minimum purchase of Herbalife products, featured speakers who had succeeded, according to the complaint.
Instead, the FTC found that half of the sales leaders received less than $300 in 2014, and many others invested an average of $8,500 in the Nutrition Club brand, with the majority of 57per cent losing money or breaking even. In addition, Carl Icahn, together with his company Icahn Enterprises, were permitted to increase the stake in Herbalife from the maximum of 25% previously to 34.99%.
Finally, if a multilevel marketing program has a heavy emphasis on recruiting new distributors, and those new recruits must also pay a fee to get involved, the company is most likely a pyramid scheme, and the SEC advises potential investors to stay away.
Herbalife has been the focus of sharp criticism from hedge fund billionaire Bill Ackman since 2012, when he accused the company of being a scam and insisted it be shut down.
The $200 million will go to refunds for consumers who lost money after purchasing “large quantities of Herbalife products”, the FTC said. Shares are up more than 22 percent over the past six months.
Herbalife said it had agreed to compensate distributors based on retail sales and to require business plans and a one-year waiting period before a distributor can launch sales, among other changes.
The activist investor has long framed Herbalife as a fraudulent company, placing a $1 billion short-sale bet against its stock and spending millions to convince others of its misdeeds.
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On the other hand, Icahn issued his own statement praising the FTC’s decision, while taking a jab at Ackman. The settlement “specifically prohibits Herbalife from claiming that members can “quit their job” or otherwise enjoy a lavish lifestyle”, according to the FTC statement.
