Saturday, July 16, 2016

Herbalife Agrees To Pay $200 Million to Settle Complaints It Deceived Consumers

Herbalife, who became the official nutrition sponsor of Real Madrid’s Cristiano Ronaldo in 2013, has just agreed to pay $200 million to reimburse consumers who lost money on its nutrition supplements and to also make major changes in its sales and distribution practices, the Federal Trade Commission announced on Friday.

The five-year agreement with Ronaldo included global publicity rights and promotional activities, and Herbalife working with Ronaldo to develop his own personalized nutrition programme. The contract also provided the opportunity for them to work together in creating a co-branded range of sports nutrition products. Ronaldo’s name was added to a Herbalife sponsorship portfolio that already included FC Barcelona and Lionel Messi, who had signed a three-year, multi-million dollar agreement with Los Angeles-based Herbalife in 2010.

Ronaldo had said at the time: “I believe strongly in the importance of the right nutrition for me as an individual, both on and off the field. I am looking forward to working with Herbalife, as a company that shares my passion and brings such expertise and knowledge in the area of sports nutrition.”

The FTC had extremely tough words for Herbalife and made clear it sees many of its practices as deceptive.

"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," said FTC Chairwoman Edith Ramirez.

The FTC filed a complaint accusing the company of deceiving consumers about how much money they could make selling its products, noting that most Herbalife distributors make no money at all.
But federal officials stopped short of calling the company a pyramid scheme and allowed it to keep operating. That was seen as a victory for the company on Wall Street, where Herbalife had become the target of a short-selling campaign by investor William Ackman.

I was a Herbalife distributor for near enough 10 years, and if anything, making money with Herbalife—I can confirm—was pretty much tough going. The products are superb, there’s no doubt about that. In fact I learned everything I know about health and nutrition from Herbalife. And I would still be using their products if the country I live in now was a Herbalife country. In other words, did business in my country of residence. I’ve continued to take the best-nutrition-money-can-buy, using and combining other brands, such as Peak Nutrition and GNLD.

Now that things have pretty much come to a head for Herbalife, my mind is slowly drifting back to my Herbalife years. I remember this one incident when it came to light that some distributors who claimed to be successful in Herbalife, actually borrowed off their credit cards—many a time JUGGLING their plastic cards—only to maintain a certain ranking with the company in order to entice others to join their organization. It was absolutely crazy, to say the least. Now going back to this current scandal, among other things, the FTC said Herbalife would have to revamp its compensation system so that participants are rewarded for how much they sell, not simply for signing up new distributors. Back in the day when I was in Herbalife, it was more about retail. So a distributor would simply stock up on the products and retail them slowly, but then regardless of whether they cleared their stock or not, they’d be ordering MORE products at the end of the month just to maintain their ranking. Hence, recruiting others and compelling them to do the same would have, in the end (in my opinion), triggered this predicament for Herbalife, who are now having to compensate distributors a reported $200 million.

At least two-thirds of a participant's compensation must be based on actual sales that can be tracked and verified, the FTC said.

"This settlement will require Herbalife to fundamentally restructure its business so that participants are rewarded for what they sell, not how many people they recruit," Ramirez said.

The FTC said in a statement that the overwhelming majority of Herbalife distributors earn little or no money: "Finding themselves unable to make money, the FTC's complaint alleges, Herbalife distributors abandon Herbalife in large numbers. The majority of them stop ordering products within their first year, and nearly half of the entire Herbalife distributor base quits in any given year."
Herbalife said in a statement that many of the FTC's allegations are "factually incorrect" but chose to accept the settlement to avoid lengthy and costly litigation.

"Moreover, the Company's management can now focus all of its energies on continuing to build the business and exploring strategic business opportunities," the statement said.

"The settlements are an acknowledgment 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," said chairman and CEO Michael O. Johnson.

Anthony J. Namata
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