Herbalife Ltd. has agreed to pay $200 million to consumers and change its business practices to settle a two-year federal investigation triggered by allegations from activist investor Bill Ackman.
The Federal Trade Commission announced the settlement Friday, saying the Los Angeles company's compensation practices were unfair.
In a complaint filed in U.S. District Court in Los Angeles, the agency said Herbalife rewarded distributors for recruiting others to join the company and purchase products instead of basing compensation on "actual retail demand for the product."
"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," said FTC Chairwoman Edith Ramirez. "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."
Herbalife sells weight-loss shakes and nutritional products through independent salespeople _ which it calls its members _ in more than 80 countries.
Under the settlement, Herbalife will pay for an independent monitor who will oversee its compliance for seven years.
The $200 million will go to refunds for consumers who lost money after purchasing "large quantities of Herbalife products," the FTC said.
Herbalife said Friday that it agreed to pay $3 million as part of a separate agreement with the Illinois attorney general's office to settle an investigation there. The two settlements resolve all active investigations against the company, Herbalife said.
