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Herbalife Avoids Pyramid Scheme Charge, Agrees to Pay $200 Million
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Summary: Herbalife has settled a lawsuit with the Federal Trade Commission by agreeing to pay $200 million and changing its business model. 

Herbalife agreed to pay $200 million in order to keep its business going and to avoid being charged with operating a pyramid scheme. The health company settled with the Federal Trade Commission on Friday and stated it would overhaul its business practices and provide consumer relief.

  
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The agreement came after a two-year long investigation by the FTC to determine the legality of Herbalife’s operating system, which rewards sellers who bring in more sellers. The investigation focused on the company’s hundreds of thousands of new sales people who were informed they would make huge profits by selling health and nutrition merchandise that they would pay for themselves up front. Sellers were often from non-wealthy households, according to reports.

The Los Angeles-based company was known to target Spanish-speaking salespeople. The company boasted to new sellers that they could earn thousands a month, even million dollar profits. However, the lawsuit said that half of the company’s sales leaders earned less than $300 a month, and that to start selling, distributors usually invested about $8,500 buying product. The majority of people broke even or lost money, according to the FTC.

Edith Ramirez, FTC Chairwoman, said that Herbalife sold people a fake dream.

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“Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices,” Ramirez said.

As terms of the settlement, Herbalife now must pay sellers based upon them selling the product, not buying it themselves. It must also change its rewards program, and an independent monitor will oversee the company’s operations to ensure compliance. The $200 million payment will compensate people who purchased the products, but payout details will be announced later.



Herbalife overall sounded pleased with the settlement, according to USA Today.

“The settlements are an acknowledgement 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,” Herbalife CEO and Chairman Michael Johnson said.

Johnson added that Herbalife agreed to the settlement because the company wanted to move forward and avoid further litigation.

What do you think of Herbalife and its business practices? Let us know in the comments below.

Source: USA Today

Photo courtesy of Herbalife



 

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