Herbalife Hit $200 Million Fine By FTC
Diet and nutrition products company Herbalife was just hit with a $200 million fine from the Federal Trade Commission due to “unfair and deceptive practices”.
The FTC is also requiring Herbalife to restructure its business, calling their fine a “significant law enforcement action”.
Herbalife In Legal Trouble
Herbalife, meanwhile, has claimed this fine as a victory, as they were battling claims that they were operating an illegal pyramid-style scheme company.
The FTC specifically took issue with the fact that Herbalife promised new distributors financial freedom and success:
“The company promised people a dream – a chance to change their lives, quit their jobs and gain financial freedom,” FTC Chairwoman Edith Ramirez told reporters according to an ABC News report, “but the FTC has charged that this wasn’t true.”
Herbalife, in the eyes of the FTC, deceived thousands of people into believing they could make large amounts of money as distributors of Herbalife products. However, most Herbalife distributors don’t actually make money through product sales: they make it by buying products themselves and then recruiting other salespeople to do the actual selling.
Ultimately, the FTC wants Herbalife to start operating legitimately and give distributors real, truthful information about how much money they can expect to make.
Obviously, the vast majority of people who sign up for multi-level marketing companies will lose money in the long run, and that appears to be the case with Herbalife. We have yet to see how Herbalife plans to change their business practices.
Herbalife Has Been In Trouble for Making Medical Claims Before
This isn’t the first time Herbalife has faced scrutiny. In 2014, the company was the subject of a year-long ABC News report, during which two reporters went undercover as distributors for the company.
These reporters found that the company over-inflated earnings potential for new distributors. However, they took particular issue with the fact that some distributors were making medical claims when selling the company’s supplements – something that’s illegal under FDA regulations.
One Staten Island-based distributor, for example, that a woman with a brain tumor became symptom free after she started using Herbalife products. That woman was caught on camera saying things like “If you see her now, she’s like one of us here…Whatever it is that the product did, it helped her a lot.”
Herbalife Claims this is a Victory
To most people, a $200 million fine is a horrible day. Herbalife, however, is calling it a victory. The settlement with the FTC, in the eyes of Herbalife, was “an acknowledgement that [Herbalife’s] business model is sound.”
They also claim the settlement will still allow the company to go forward smoothly. Despite the fact that Herbalife sees many of the FTC’s claims as “factually incorrect”, they decided to settle to “avoid the financial cost and distraction” of lengthy litigation.
One reason why Herbalife has faced intense scrutiny from the FTC is from billionaire hedge fund executive Bill Ackman, who made a big bet that Herbalife’s stock prices would plummet after the allegations. Since that hasn’t yet happened, Ackman is continuing to persuade the government to scrutinize Herbalife more intensely.
