The settlement also will include the determination that the company isn’t a pyramid scheme, the news service said, citing people it didn’t identify. However, when pressed on this issue during a media conference, Ramirez said she does not endorse the statement that FTC has declared Herbalife is not a pyramid scheme. That’s when he first accused the company of being a scam that had zero value.
Advertisement
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.
Herbalife’s stock received an immediate 15% increase following the news. Shares of Herbalife (NYSE:HLF) jumped to more than $70 a share and fluctuated between $65 and $70 throughout the morning.
“While Bill Ackman and I are on friendly terms, we have agreed to disagree (vehemently) on this subject”. The FTC’s website warns consumers to “avoid any plan where the reward for recruiting new distributors is more than it is for selling products to the public”.
The company must better police distributors and stop them from misleading potential recruits about how much money can be made, the FTC said. It’s legal but the practice has many detractors. Often, only a small number of sellers actually make money.
The $200 million payment included in the settlement will go toward refunds for consumers who lost money after purchasing “large quantities of Herbalife products”, the FTC said.
Now what: The FTC seemed to come as close to calling Herbalife a pyrmaid scheme as possible without doin so, noting that “the retail sale of Herbalife product is not profitable or is so insufficiently profitable that any retail sales tend only to mitigate the costs to participate in the Herbalife business opportunity”. The settlement also will require Herbalife to verify, through receipts and other methods, that its product sales are legitimate.
Herbalife, in turn, said that it believes the FTC’s accusations are “factually incorrect” but have made a decision to agree to the settlement to put a rest to the two-year investigation.
Ackman, founder of Pershing Square Capital Management, helped trigger the federal investigation by alleging Herbalife was a pyramid scheme.
He has continued to claim that Herbalife was a fraud that misrepresented its sales. “I gotta tell ya, every extra million dollars, I find, comes in handy”, Herbalife Chairman’s Club member John Tartol said in a 2012 summit in Los Angeles, according to the complaint.
Ackman isn’t backing down though.
Pershing Square did not immediately respond to a request seeking comment. We intend to work with these regulators to ensure that no future victims are harmed whether in the USA or otherwise.
Ackman, 50, hired his own researchers to dig into Herbalife’s dealings and released a series of videos and presentations that he said showed the company was crooked.
His support of Herbalife led to a dispute with Mr Ackman. “Simply stated the shorts have been completely wrong on Herbalife”, Icahn added in a statement.
Advertisement
Herbalife responded at the time, welcoming the inquiry and said it would cooperate.
