The stock has rallied higher after the US Federal Trade Commission (FTC) cleared the global nutrition company of charges that it functions as a pyramid scheme.
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The FTC is also requiring Herbalife to “fully restructure their USA business operations”.
The FTC pointed out that the overwhelming majority of Herbalife’s distributors earn little or no money. At least two-thirds of rewards paid by Herbalife to distributors must be based on retail sales of Herbalife products that are tracked and verified.
The settlement requires the company to change the way it compensated distributors, whose earnings were based on the number of new sales people they recruited.
Herbalife said in a statement that numerous FTC’s allegations are “factually incorrect” but chose to accept the settlement to avoid lengthy and costly litigation.
Herbalife and the Illinois Attorney General also reached a settlement, and the Company agreed to pay $3 million as part of this separate agreement. The FTC stated, “It mandates a new compensation structure in which success depends on whether participants sell Herbalife products, not on whether they buy products”. “Herbalife misled people into believing they could make lots of people by selling Herbalife products and we contend that was actually not the case”, Ramirez said.
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.
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”.
“Unlike many of those that “shorted” Herbalife, we did not rely on one or two research papers prepared by non-experts”, Icahn, 80, said in the statement.
“The settlements are an acknowledgment that our business model is sound and underscore our confidence in our ability to move forward successfully”. 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%.
The settlement, however, did not deem Herbalife a pyramid scheme.
Once again, Herbalife said Ackman’s interest in its business practices is purely financial.
The settlement “specifically prohibits Herbalife from claiming that members can “quit their job” or otherwise enjoy a lavish lifestyle”, according to the FTC statement.
NEW YORK (AP) – Federal regulators closed an investigation of the multinational, nutritional supplements company Herbalife.
His support of Herbalife led to a dispute with Mr Ackman.
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“I have the greatest confidence in Herbalife’s CEO, Michael Johnson, and the entire management team, who have skillfully led the company through adversity, including holding firm against a high-profile PR campaign against the company by Bill Ackman where it was alleged a few times that the company would be shut down”, Icahn said.
