From The Washington Post:
Herbalife, the nutritional supplement company, has agreed to completely restructure its business operations, hire a third-party compliance auditor and pay a $200 million fine in a settlement with federal regulators over questions about its marketing practices.
The Federal Trade Commission alleged in a complaint that the company had engaged in unfair and deceptive practices, in part by misrepresenting how much money people were likely to make if they signed on as Herbalife distributors. According to the complaint, Herbalife is a multi-level marketing scheme that attracted people by using videos and presentations featuring images of mansions and luxury cars — and testimonials about others who earned substantial income and even quit their jobs.
The settlement, which calls for broad changes to Herbalife’s direct marketing program, contains no admission of wrongdoing and the company said in a press release that it believed many of the allegations by regulators were “factually incorrect.”
“The settlements are an acknowledgment that our business model is sound and underscore our confidence in our ability to move forward successfully, otherwise we would not have agreed to the terms,” Michael O. Johnson, chairman and chief executive of Herbalife, said in a press release.
The FTC alleged that, contrary to the company’s promotion and marketing, the only way to make significant money was by recruiting others — not by selling products. It also alleged that the majority of distributors did not recruit a single new distributor.
“Participants in a business opportunity should have some reasonable prospect of earning profits from reselling products to customers. However, most Herbalife participants earn little or no profit, or even lose money, from retailing Herbalife products,” the complaint states.
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.
“[H]ow many of you would like to make at least a …