Herbalife, the multilevel nutritional supplement marketer, has to pony up $200 million in consumer redress and also restructure its U.S. business operations as part of a settlement with the Federal Trade Commission.
However, in its investigation, the FTC stopped short of labeling Herbalife a pyramid scheme.
The settlement comes after a two-year federal investigation into the Los Angeles-based company’s multilevel compensation structure, which the FTC says is unfair because it rewards distributors for recruiting other people to join Herbalife and buy its weight-loss products, rather than basing compensation on “actual retail demand for product.”
Edith Ramirez, FTC chairwoman, says in a statement:
“This settlement will require Herbalife to fundamentally restructure its business so that participants are rewarded for what they sell, not how many people they recruit. Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices.”
According to the FTC, Herbalife deceived many consumers with its claims that its distributors — which it calls “members” — can quit their jobs, earn thousands of dollars a month and even get rich.
In reality, the “overwhelming majority” of distributors earn “little or no money,” according to the FTC. For example, more than half of Herbalife’s distributors earned less than $300 in 2014.
The $200 million in consumer redress will go to refund distributors who lost money after purchasing “large quantities of Herbalife products,” the FTC said.
Lois C. Greisman, the FTC’s associate director of the division of marketing practices, wrote on an FTC blog:
This is a big win for anyone who paid lots of money to Herbalife, and people who might in the future. That’s why this settlement is so important for consumers. Now, anyone who tries to make money selling Herbalife will be paid based on what they sell, not how many people they recruit.
Read more about the Herbalife settlement at the FTC website.
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