The Federal Trade Commission announced that it’s refunding 350,000 of Herbalife Ltd.’s U.S. distributors whom the agency said were wronged by the nutrition company.
The checks are being taken from $200 million Herbalife paid as part of its accord with the FTC that was reached in July. That agreement followed an FTC investigation that was prompted by allegations from hedge fund manager Bill Ackman, who called the direct seller an illegal pyramid scheme four years ago and bet $1 billion against its stock, Bloomberg News reported.
“We are pleased to announce that hundreds of thousands of hard-working consumers victimized by Herbalife’s deceptive earnings claims will receive money back,” Jessica Rich, director of the agency’s Bureau of Consumer Protection, said Tuesday. “Along with changes the company will make to its business structure, this is a win for consumers.”
Herbalife has had to rein in its business practices in the wake of the FTC settlement, and that’s weighed on the stock. It fell 10 percent last year, though it’s still above its range when Ackman began shorting the shares. They were little changed on Tuesday, trading at $49.50, Bloomberg said.
“Our business in the U.S. remains strong due to the robust consumer demand for our science-based products,” Herbalife officials said in an emailed statement. “We look forward to continuing to build an even stronger company.”
Most of the refunds range from $100 to $500, with the highest exceeding $9,000. The payments, which only partially recoup losses, are going to people who ran an Herbalife business in the U.S. between 2009 and 2015.
The recipients paid at least $1,000 to Herbalife but got little or nothing back from the company.
Herbalife officials said at the time of the settlement in July that it disagreed with many of the FTC’s allegations but had decided to settle to avoid “the financial cost and distraction of protracted litigation.”
Former distributors don’t need to file a claim with the agency. The FTC said people should receive their checks by Jan. 20. Those who believe they should have received a refund can get more information at ftc.gov/herbalife or by calling 844-322-8146.
When first announcing the settlement, Lois C. Greisman, the associate director of the division of marketing practices for the FTC, said when the agency settles with — or sues — a company, they’re often trying to stop illegal behavior, return lost money to people as often as they can, and generally make unfair things fair and deceptive things true.
“The historic settlement with Herbalife goes one better,” Greisman said. “The FTC’s settlement significantly restructures Herbalife, changing — top to bottom — how it does business. And it makes the company pay $200 million back to people who lost the most money. This is a big win for anyone who paid lots of money to Herbalife, and people who might in the future.”
Many may know Herbalife through its extensive marketing in English and Spanish. Through print and video promotions, and glowing testimonials, Herbalife told consumers they could change their lives — quit their jobs or even get rich — by selling the company’s weight-management and nutrition products.
Their pitches included testimonials from past participants: “The days when I would earn a living cleaning houses are behind me,” “When we worked in factories our earnings could only pay for basic needs, but now we can take our 12 grandkids on vacations,” “When I got to ten thousand, I thought, well that wasn’t so hard after all, maybe I can get to fifteen, and I went from fifteen, to twenty, and then to thirty, and then even up to $40,000 a month.”
Hundreds of thousands of people signed on for the Herbalife business “opportunity” — but most people made little or no money, Greisman said. In fact, the FTC’s complaint shows how half of Herbalife’s “sales leaders” earned less than $5 a month on average from selling the product. Instead, the incentives were to recruit more people who would then buy more product — regardless of whether there was a market to sell it, she said.
“That’s why this settlement is so important for consumers,” Greisman said. “Now, anyone who tries to make money selling Herbalife will be paid based on what they sell, not how many people they recruit. The settlement also requires the company — from now on — to make only truthful claims about how much money people are likely to make. And they have to be able to back those claims up.”