Herbalife Agrees to Pay $200 Million to Settle FTC Action

Multi-level marketing companies Herbalife Ltd., Herbalife International Inc., and Herbalife International of America Inc., have agreed to revise their compensation structure and pay $200 million to settle an action by the Federal Trade Commission.

“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,” FTC Chairwoman Edith Ramirez declared in an official statement.

The FTC complaint alleges that Herbalife operates more like a pyramid scheme than a multi-level marketing company.

Both types of operations sell products through members, but legitimate multi-level marketing companies compensate members more from their sales of product than from recruiting new participants. Conversely, pyramid schemes depend more on recruitment.

In its complaint, the FTC went into significant detail explaining its allegation that Herbalife’s compensation plan relies too much on recruitment. For example, the FTC asserts that about 60 percent of Herbalife’s product is sold to its own participants in its distribution plan, and members can only reach the top levels of compensation through recruitment.

The FTC also alleges that Herbalife deceptively advertised participant’s ability to make money through its program. Herbalife promotional materials often state that participants could make thousands of dollars every month through the program, and have testimonials from the small percentage of distributors that do make money through Herbalife.

However, the FTC states that the average income for over half of Herbalife distributors in 2014 was under $300 per month. Similarly, members were encouraged by Herbalife to start “Nutrition Clubs,” where they could sell products and recruit new participants. But members paid on average over $8,000 each to start such clubs, and over half of members surveyed said that their club did not make any money.

The FTC settlement requires Herbalife to change its compensation plan, and pay the FTC $200 million.

The $200 million will be used “to provide consumer redress, including money for consumers who purchased large qualities of Herbalife products (such as many Nutrition Club owners, among others),” according to the FTC.

In its press release, the FTC promises that information about its “redress program” will be announced at a later date.

Therefore details about when and how to file a claim for the Herbalife pyramid scheme settlement were not immediately available, and will be updated as the FTC releases more information about its redress program. Keep checking TopClassActions.com or sign up for our free newsletter for the latest updates. You can also “follow” this case by using your free Top Class Actions account to receive notifications when this article is updated.

The FTC said in its statement that, “We are pleased that this order will require Herbalife to base rewards on tracked and verified retail sales and recommend that all multi-level marketing companies likewise take sufficient steps to ensure their practices are not unfair, false, or misleading.”

The FTC is represented in this action by David C. Shonka, Janet Ammerman, Christine M. Todaro, Daniel O. Hanks, Laura Solis and Barbara Chun.

The Herbalife Pyramid Scheme Lawsuit is Federal Trade Commission v. Herbalife International of America Inc., et al., Case No. 2:16-cv-05217, in the U.S. District Court for the Central District of California.

UPDATE: According to the FTC Herbalife Refund website, Class Members don’t need to submit a claim or proof of purchase at this time. The FTC will contact individuals who are eligible for getting a portion of the Herbalife refund. Top Class Actions readers who want more information can contact the FTC at 1-844-322-8146 or sign up for email updates here. 

UPDATE 2: The FTC is mailing checks to nearly 350,000 individuals who paid a minimum of $1,000 to Herbalife but got little or nothing in return. According to the FTC website, most of the checks range between $100 and $500. 

UPDATE 3: May 2019, the FTC mailed a second round of checks totaling more than $45 million to those who ran a Herbalife business and lost money.