Herbalife Agrees to $200 Million FTC Settlement, Will Restructure Multilevel-Marketing Business

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The FTC today reached a $200 million settlement with direct-sales firm Herbalife that requires the nutritional supplement, weight-management, and personal care marketer to restructure its multilevel-marketing business model.

The FTC’s complaint against Herbalife accused the company of misleading consumers by suggesting those consumers could earn significant income by selling Herbalife products; compensation, however, was based on whether consumers were then able to recruit others into selling Herbalife products and was not based on actual product sales.

“Defendants represent, expressly or by implication, that Herbalife distributors are likely to earn substantial income, including significant full-time or part-time income, from pursuing a retail-based business opportunity. In reality, however, Defendants’ program does not offer participants a viable retail-based business opportunity,” the FTC complaint stated.

Announcing today’s settlement, the FTC did not classify Herbalife’s business as a pyramid scheme. But, the agency stated, “Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make…” The $200 million redress will largely compensate those who were selling Herbalife products, the majority of whom the FTC said earned “little or no money.”

FTC’s press release announcing the settlement today also noted a high turnover of Herbalife’s distributor base, with nearly half of distributors quitting yearly after they failed to make a profit. Those who opened Herbalife Nutrition Clubs, for instance, on average spent $8,500 of their own money to do so, with approximately 57% of those club owners either making no profit or losing money in the end.

Under the settlement, Herbalife agreed to change its system to base compensation primarily on retail sales. The FTC stated, “It mandates a new compensation structure in which success depends on whether participants sell Herbalife products, not on whether they buy products.”

On Herbalife’s website today, Herbalife chairman and CEO Michael O. Johnson issued this statement: “With our recent settlement with the FTC, we and our 4 million preferred members and distributors are focused more than ever on helping people achieve their goals-whether by losing weight, living a healthy lifestyle, or earning some extra money when and how they choose through our direct-sales business model. The terms of the settlement in no way change our business model as a direct-selling company but simply build upon current procedures. Because of this, we are confident and excited about the future of our business.”

Also read:

Harshest Sentence Ever Delivered in Food-Safety Case: 28 Years in Prison

Jennifer Grebow
Editor-in-Chief
Nutritional Outlook magazine
jennifer.grebow@ubm.com