Herbalife settles class action lawsuit for running pyramid scheme
01 November 2014
US controversial multi-level nutrition and weight management marketing company Herbalife Ltd yesterday agreed to settle a class action lawsuit for allegedly running a pyramid scheme.
Under terms of the proposed settlement, California-based Herbalife, which also operated in India, will pay $15 million in cash, and $2.5 million for product returns.
It also agreed to make "numerous changes" to its business model for at least three years. The settlement has to be approved by the court.
The company however said that the settlement is not an admission of liability or wrongdoing but it is in its best interest and it could now focus on the future growth.
"The potential cost, as well as the distraction, disruption and burden of prolonged litigation on the company and its management team, led the company to decide that the terms set forth in the settlement agreement provided the best path for moving forward," Herbalife said in a statement.
Dana Bostick, a California-based downline distributor had last year filed a complaint alleging that the company's business model is a pyramid scheme where early distributors made money through bonuses by recruiting downline distributors under their team and thousands of downline distributors did not make much money by trying to sell the products.
The US Federal Trade Commission, the Federal Bureau of Investigation and several states are also investigation the alleged pyramid scheme.
Hedge fund manager Bill Ackman had also concluded after extensive research that Herbalife operates a pyramid scheme and victimises people who sign up to sell its products.
Ackman has bet heavily against the company's stock, while activist investor Carl Icahn recently became its largest shareholder and has five seats on its board.
Herbalife, whose products are not sold in stores, is a nutrition company that sells weight-management, nutrition and personal care products in more than 90 countries through a network of independent distributors.