It’s no longer business as usual at Herbalife: An inside look at the $200 million FTC settlement

Multi-level marketer Herbalife will pay $200 million back to people who were taken in by what the FTC alleges were misleading moneymaking claims. But when it comes to protecting consumers, that may not be the most important part of the just-announced settlement. What could matter more than $200 million? An order that requires Herbalife to restructure its business from top to bottom – and to start complying with the law.

Advertising in English and Spanish, Herbalife pitched its business opportunity as a way for people to quit their jobs and make the big bucks. Other ads promoted Herbalife as a means for already hard-working people to provide a little more for their families: “When we worked in factories our earnings could only pay for basic needs, but now we can take our 12 grandkids on vacations.”

But don’t start packing the kids’ bags because according to the FTC, it’s virtually impossible to make money selling Herbalife products. As explained in the complaint, our analysis shows that half of Herbalife “Sales Leaders” earned on average less than $5 a month from product sales. For folks who invested the most to build an actual retail business – a brick-and-mortar store that Herbalife called a Nutrition Club – the majority made nothing or even lost money. 

Which brings us to the inconvenient little secret about Herbalife that the FTC’s complaint alleges: The small number of distributors who actually made money made it not by selling products to people who wanted the company’s powders, pills, and potions, but rather by recruiting others to serve as distributors – and encouraging them to buy Herbalife products.

The lawsuit alleges that Herbalife deceived consumers into believing they could earn substantial income from the business opportunity or big money from the retail sale of the company’s products. In addition, the complaint charges that one of the fundamental principles of Herbalife’s business model – incentivizing distributors to buy products and to recruit others to join and buy products so they could advance in the company’s marketing program, rather than in response to actual consumer demand – is an unfair practice in violation of the FTC Act.

Under the settlement, that all has to change. The order requires Herbalife to drop its current system of rewarding distributors primarily for recruiting a “downline” of people who will buy the product at wholesale, without regard to whether there are customers out there who really want the merchandise. Under the new compensation structure, success in the Herbalife marketing program must depend on whether participants sell products, not on whether they can recruit additional distributors to buy products.

You’ll want to read the order for the detailed dos and don’ts, but they’re all closely tied to the law violations alleged in the complaint. Here’s just one example: The order requires a clear differentiation between people who join just to buy discounted products for their own use and those who join the business opportunity. For people in the bizopp, 2/3 of rewards must be based on verifiable retail sales, with no more than 1/3 coming from product designated as “personal consumption.”

And it’s not a “we’ll take your word for it” thing. The order includes teeth that will put a financial bite on non-compliance. To make sure everyone at Herbalife is on board with the new set-up, 80% of the company’s net sales will have to be real sales to real buyers. If that doesn’t happen, the rewards that high-level distributors pocket will be cut. What’s more, for the next seven years, Herbalife has to hire an Independent Compliance Auditor to monitor what the company is doing to comply with the new compensation plan. The Auditor will report to the FTC, who will have the authority to replace that person should it become necessary.

We’re glad to be returning $200 million to consumers. (Details about the refund program will be available soon.) But another key goal is to dismantle the alleged deception and unfairness built into how Herbalife does business. As the company rewrites its advertising claims and restructures its compensation system, we’ll be watching. The Auditor will be watching. And consumers should be watching, too.

 

Comments

According to Herbalife CEO and Herbalife Press Release- Herbalife was deemed NOT to be a pyramid scheme and NO changes to their business model will be made. Seems very contradictory to this.

They have restructured their whole system, the reason many have stepped down

It is not a pyramid... it is MLM... they have made changes.... i am a distributor... the way customers are invoiced as well as tracking personal consumption.... as well as how you market the business opportunity has all been changed.

Dear FTC,

Kudos to you for finding illegal activity at Herbalife. So why in the world would you allow it to exist with a $200M slap on the wrist? This is exactly why the public is losing faith in public institutions. If what you allege is true, then this company basically does not have a real business other than swindling people. Yet they get to keep on going? What!!!???

Its like telling a robber who has been caught robbing over many years, "Hey, you can't actually take merchandise from a store without paying for it. We will assign an auditor to watch you every time you walk into a store to make sure you pay for what you buy." Really FTC????

I have no interest in the stock or the hedge funders battling over this company. However I am disgusted that you allowed Herbalife to exist even though you found that they illegally ruined the lives of a lot of vulnerable people.

Shame on you!!!

Sorry about the way you feel about Herbalife, it's clearly known that once Herbalife gives them money they will never be allowed back into Herbalife which is very fair. Me as a distributor I love my job and the pay is wonderful specially when you work hard for it. Some people expect to make a big investment and do t have the customers, they have to attend training meeting which they don't and that the reason why they fail in this business. I love it!! I have hetbalifes back and when We just keep growing everyday , too bad those people won't be able to come back , it's their loss

How do I know if I am eligible? I use to sell herbalife

How could I know if I'm getting a check in the mail I called the number for no one picks up.

I got into Herbalife about 15 years ago and they took me for $5,000.00 and as hard as I tried, i never made a dime. Am I eligible for a refund?

I know people who got a check, not even knowing why, and they are still in herbalife

They got a check and they are still active members?

Herbalife has great products and a huge number of supporters... now the system that was abused has gotten cleaned up... what i find is most people find ways to bend the rules.... so now the company had to shine lights on those doing so and put a stop to it. Herbalife has also helped a lot of people with overall wellness... so you say they have ruined lives... the other side of that coin is they have also helped save lives too....

Am I eligible

Does think action start from the beginning of this company's existence?, and how do you know who the people are that get this money back?
I feel like I am a victim as well from 2006 I paid for membership, it cost me over a $1000.00.
What can I do to get my money back.

Oh my goodness! $1000? I'm with a 30+ yr old company (not mlm), making money and it only cost me $19. No scam with my company! Customers and business builders pay the same!!! And all get the same discount of roughly 40%. I certainly feel for all that got scammed into paying a lot of money up front. Hope you get some of your money back.

I love it! A scammer promoting another scam on an article about scammers!

For one Herbalife membership has never been $1000.00 bucks best thing to do is go to the person who signed you up and ask for your money back

It doesn't cost a 1000 but they get you to invest 1,000 up to 3000 dollars in product so you can become a supervisor and have 50percent off the products. So, don't come on here pretending to be legit. Distributors are not trained to sell packages they are trained to recruit becaus thats how the money was made.

My mother and I both received a check this week... I haven't touched it, we almost thought it was to good to be true...

I received one! It's legit cash or deposit it! I did this in 2012 and spent over $1,000 to become Supervisor and the got stuck with all the product I couldn't sell. I still have unopened items I wonder if I can return them and get the rest back. Thank you FTC !!

I received a check this week as well!

I have Been an Herbalife member for four years now and just recently found that not one cent of the money I used to purchase products for myself and family has went toward my account I was told to spend a certain amount to build discounts as well as reputation so I can be looked at as an supervisor and distributor in the future and yet those people that I thought were in my corner were not

Does the settlement include the people that was duped into trying to sell the products and lost money?

While there are several major good aspects to the settlement to prevent Herbalife from scamming people, the FTC did not mention the abusive tool scam practices. I believe the tool scam will return, as the upper level of Herbalife "leader" scum-bags will be making far less money under the new requirements and threaten to leave unless Herbalife allows them to scam their downline via the tool scam. Examples are the lead generation and other methods of scamming their downline, such as various meetings, books, CDs, website access, voice mail, etc. Ignoring the tool scam issue was a major FTC error.

Dear FTC,

The CXO suite, the top distributors, distributors in the BOD, executives, the HLF compliance department did things that to a layman appear to be criminal in nature. Furthermore, even if somehow criminality was not in the cards for whatever reason, how can it be that those people have not been terminated or severely reprimanded? This void is only exacerbated by the fact that former FTC Commissioner, Pamela Jones-Harbour, was brought into HLF two years ago and another commissioner was brought in recently. The optics of the combination of all these aforementioned questions and seemed inactions create an feeling of helplessness to the public that says that fraudsters get away with murder (figuratively, but may perhaps literally).

What if anything are the FTC and other agencies to bring accountability to the criminals that appear in videos, presentations, trainings, and a vast array of evidence which - mind you - start from the CEO to the HLF President, to the COO, to the CFO, all the way down the line. What if anything?

Meaning, if there are no consequences to these people who clearly violated the public, what is to stop such activities not only from them, but also from the rest of like-minded people viewing the HLF results?

Much more was expected from the FTC.

While there is much celebrating, one has to be disappointed that in years of effort the findings where the same that were known and available years ago. Findings and conclusions that could have taken a few months if not less.

In the meantime, HLF got way with hurting millions of people, destroying lives, and stepping on anyone who dared to speak up via threats, smears, retribution, and legal maneuvers.

$200 Million was a very empty penalty. HLF Free Cash Flow gathered that through the fraud on a quarterly basis.

2 Million churned per year out of $Billions.

The penalty does not fit the accumulated crimes.

HLF has already began dismissing and belittling the FTC and the Federal Government.

The Independent Auditor is not transparent enough with the public and that is a major problem.

HLF is still not transparent to the public and that is a problem.

Will the public have access to the emails, records, documents, findings, from the investigations?

The black-box environment allows HLF and such companies to do all the things that the FTC outlined in the findings and rulings.

I for one expected much more from the Federal Government.

What about other companies that were party to Herbalife - like PTI - who offered tools/training to get you there faster than going directly through Herbalife as a consultant - and same goal????? After expecting thousands of dollars to be paid, stopped. A company like PTI should be included in what happened with HLF - probably more so than just HLF by itself!!!!!!!!!!!!!!!!!!!!!!

How can we be added to this settlement?

I have been a user of Herbalife products since 1999. I love the products. I think it's unfair to put limits to how much I can buy for myself and family. Herbalife has never made me feel that I have to open/operate a Nutrition Club to be successful. Herbalife never told me that this was a get rich over night kind of deal. Herbalife has never told me to buy x amount of products, so I can move up the marketing plan. All these allegations are incorrect. Yes, there may have been some Distributors that pushed it a little too far, but it was NEVER Herbalife. Yes, I do take advantage of the Marketing Plan to get the best discount for me and my family, and I will be very upset if I lose my 50% discount. Yes, I do retail products, and I have made extra income. However, I wouldn't say I am doing it to get rich. For those Distributors who feel like they have been taken advantage of, you are wrong... Most businesses do not earn a profit right away and most businesses (even outside of Herbalife) fail within the first year. Being an entrepreneur is a risk, and if you've taken a business course, you would know this. Soon everyone will know how much Herbalife is loved. I will continue to use the products regardless if there is a compensation plan to go along with it. The FTC made a bad decision to collect $200M and return it to people who knew what they were getting themselves into... Sue the wrongful Distributors NOT Herbalife.

The FTC did a long investigation, and while your experience may be true, there are many others that have been tricked with deceptive claims. If what you say true and the settlement was unjust against Herbalife, Herbalife wouldn't have agreed the terms nor to pay $200M, and most importantly, have their reputation damaged. After this settlement many people will think it through before joining Herbalife.

"Being an entrepreneur is a risk" - News flash, you are not an entrepreneur, and that statement in and of itself speaks to the brainwashing these schemes use as a tool. You may very well be a victim and just not realize it.

In reality, you should have described yourself as a 'consumer' and a 'salesperson' for the company Herbalife. And since you claim to have retail sales, this settlement shouldn't be a problem for you - unless of course, those customers are like you and sign up to get a discount on their own consumption which anyone can do. This can negate your mark up making it a lousy sales job and hardly an entrepreneurial business. Round and round we go. Read, inherently flawed business model.

So, if I buy a McDonald's or Chicfila franchise, am I an entrepreneur? Aren't I just buying someone else's idea and building it to my own purpose. So, if I go to work at a car sales company where my sales manager gets a cut of his sales team's commissions, is the car company a pyramid scheme? People just need to do their research before jumping in, and realize that success takes ALOT of hard work, time, and yes, money. Sometimes, the more money you have to build your business the faster you'll make that money back. This is true in ANY corporate sales environment. Maybe the FTC should look deeper into people who are getting rich in a government beauracracy? How do you get Rich as a public servant?

The problem was with how people were rewarded/compensated. Instead of a fair retail margin they could stack the deck by purchasing any amount under their own account and would often do so at the end of the month for that 'next bonus'. The compensation structure made it a lose lose situation and placed the consumer in a position to not win.. Yes most businesses don't make money right away....some do with no risk to the direct sales person. You should keep using Herbalife if you love the products!! Just know the compensation part will change, there will now be safe guards to protect those that do want to try to build a business. The FTC had to go after Herbalife...just like they sent warning letters to Young Living and DoTerra for inaccuracies or dangerous comments made by a majority of their distributors.

"For those Distributors who feel like they have been taken advantage of, you are wrong."

Way to be open to what happened to others bro. That was your experience? Nope, gonna brush what you're telling me aside as a lie.

Is it just me, or does every person who uses Herbalife have this same closed minded view of the world? If what others say doesn't match what Herbalife has told us it must be a blasphemous lie! Go team!

why are the distributors to blame? I remember how much pressure they put on me to purchase and made me think it was easy, they posted their ads in a way that manipulated people seeking jobs that Herbalife was going to help them increase income. It was all a scheme to get free labor and more money. Your experience isn't everyone's experience so get over it and accept it.

The FTC just listened to Bill Ackman, because like the person who responded in the above, what you see at the ground level is far different than what the FTC alleged. Sure the FTC will say they did the grunt work, but how can what I see be so different than what the FTC sees, UNLESS the FTC read boiler plate letters sent to the FTC and laughably found them to be true and accurate when Bill Ackman's team wrote those letters. Further, it is clear that the FTC believes Latino people are inherently stupid and therefore listened to the shameful latino activist Julie, when she has lied throughout and shown to have absolutely no moral compass. (el chapo tweeting) So I think the FTC was compelled to do something because there is some abuse in the industry and because Bill Ackman and his paid politicians would look horrendous if they were found to be blatantly wrong. The FTC wants to protect consumers but kill business, this has been the case for the last couple of years, and it just goes to show you the absurd mentality among non-business friendly leadership.

I reiterate, why does my research on the ground and member research who are using the product differ from what the FTC said. It's inexplicable. But alas these are the clowns in government who never worked in a business setting, so thank you FTC in making me nauseated. Full disclosure, I have no position in Herbalife in any form, simply because I knew the FTC would overstep and act similar to the babies crying for William Ackman.

This is great news. I hope the same is applied to all the MLM industry.

What happens if the $200M is not fully utilized? How long will you hold it? Do you give it back after certain timeframe? Who audits your use of the funds? We will be watching

How about spending the excess money on a massive campaign to educate the public about MLM pyramid schemes?

I listened to the FTC press conference announcement and the questions from the press afterwards. It became clear that despite question after question asking for clarification of whether HL is a pyramid scheme, the FTC spokesperson would not admit it. She did however express disapproval of HL stating in its own press conference that it was found NOT to be a pyramid scheme. She confirmed that she did not agree with this statement and said that "HL has not been not found to be a pyramid scheme". If it swims like a duck, waddles like a duck, quacks like a duck, it's a duck (or in this example, a pyramid scheme).

Tex (in comment further up the comments list) makes a good point about the additional expenses incurred in belonging to an MLM business; the tapes, CD's, books, training sessions, website charges that have to be bought and paid for regularly. Then there's the events that have to be attended; hotel expenses, food and drinks, travel costs. It is an expensive business being in an MLM, not just HL.

You're exactly right about the overhead costs, and the Herbalife Nutrition Club costs (rent/lease, insurance, utilities, etc.) are the major reason people lose money. The FTC should pull the string on who is providing the facilities, I wouldn't be surprised if it were the upline. Also, it's not just the losses to the 99% who buy the tools, it's the massive profit made by the 1% providing the tools. In the case of Amway, 10 times or more is being made from the tools compared to Amway, by several claims of former Amway distributors/IBOs.

I was deceived. I was given false information about the business. How do I become a part of this settlement?

This is a 2-way street, not a highway and a bike path. Since I started using the products, compensation has always been based on purchased volume and not sold volume. Is this a good change for consumers? I believe so. How about for the "top" distributors? Not so much. The company knew all along at least since the CEO Michael O Johnson (MOJ) joined Herbalife that many top distributors were applying business practices that were borderline unlawful or unethical, but since those practices moved a lot of volume the company said nothing. Why? It could very well be because several of those top distributors are, or were at some point, also part of the board of directors. In essence, they are/were the CEO's boss.
The company expelled some of the little fish, but what about the big fish that got away? People like Susan Peterson and her deceased ex-husband John, Doran Andry, Leslie Stanford, Leon Weisbain, etc. and many of their top producers. They among many others are responsible for causing this mess, not just the company.

Seems HLF has retroactively edited their press releases and no longer claimed "not a pyramid scheme".

Which, of course, means any website with articles that claimed "FTC says HLF not pyramid scheme" merely copied the HLF press release, rather than FTC's. (Here's looking at you, CNNMoney... And whoever syndicated your content)

How do you know if you are part of this settlement? We were part of Herbalife and lost a lot of money with all their scams. Please let me know

I don't understand..... Your findings indicate that Herbalife was in fact running a pyramid scheme and they get off with a small on the wrist and declare themselves victorious. I thought the FTC was a consumer advocacy group. Why was Burnlounge treated so differently?

The truth of the matter is this. Herbalife is a great company. Unfortunately most of the people who join as Distributors just see dollar signs. They personally are not prepared to put in the work to create success for themselves. Nobody forces these people to part with their money. They do not have the skills to make the correct decisions. Do you think Warren Buffet would dive in and open a NC without first completely assessing all the pro's and cons sufficiently, I think not. Herbalife is a business just like any other business. The old saying is applicable here "fools rush in" and then they start playing the blame game when they can't cut it.

I took a job managing an office for 3 HL distributors. 2 weeks into my employment, listening to them pitching their products, I thought,"I can do this." I didn't need to lose weight, but I had a lot of overweight friends, my husband included. Besides, I needed to make enough $$$ to pay a phone bill. Couldn't get my husband on the product, but my best friend did agree to give it a try. She lost 17 lbs in 2 weeks. On my lunch breaks, we would parade through the local mall where I worked part time at a boutique and a bookkeeper for 2 other businesses. People were inquiring about her weight loss and I went on to retail $2000+ in product. Keep in mind, I was not a distributor at that time but because of my sales, I signed on with HL and became a supervisor. Within the next 2 weeks, we moved over $10,000 in product, I was able to leave my 3 part time jobs and devoted full time to HL. I had no idea how the HL compensation plan worked.. Here's what I knew: their products were working for my 235 retail customers. My initial investment: $100, hard work, and an investment of time. After a year with HL, I became a contender for the production bonus award given annually to the top 10 distributors in the country with sales of $47,000.. Income then: a supervisor, 50% discount on all products....25% from your down line sales who have not achieved senior consultant or supervisor status...10% from your down line senior consultants and when your down line become supervisors, you are paid 5% of their sales. Herbalife was a great company then... And although, I am no longer associated with them., due to personal reasons, ..they are a great company now.

After 5 years in the HL business and being told to buy 2500 per month in product we had to go bankrupt. Sad but true I love the products but the company ruined us. I hope we are part of the reimbursement settlement

Will this FTC enforcement be able to reach beyond the US borders? The vast majority of HLF's business (and fraud) occurs overseas.

America,
We have nothing better else to do than LIE !
That product has been out for years and now that they have nothing else
to talk about. they need to make something up... LIKE COME ON what's Next!

I am another "distributor" who never made any money but was brainwashed at "success training seminars" into spending thousands of dollars to become a "supervisor" Thankfully, I wised up before I attempted to open a " nutrition club " !FTC Please contact me about the settlement .

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