Disgruntled Herbalife Ltd. shareholders lost their lawsuit against the company and its CEO when a judge ruled the plaintiffs failed to prove allegations of intentional deception or misrepresentation, according to court papers obtained Wednesday.
The shareholders unsuccessfully alleged that the Los Angeles-based weight-loss and nutritional products company had misrepresented compliance with laws designed to prevent pyramid schemes.
In a written ruling, U.S. District Judge Dale Fischer determined that the Oklahoma Firefighters Pension and Retirement System failed to show that the defendants intended to deceive shareholders or had materially misrepresented Herbalife’s business.
Fischer, who had thrown out two previous versions of the lawsuit, dismissed the case with prejudice, meaning it cannot be brought again.
“For the third time, the judge has ruled in our favor, this time dismissing the claims with prejudice,” according to Herbalife. “We are obviously pleased with the judge’s decision.”
Herbalife has long denied that it is a pyramid scheme, which occurs when participants earn more money by recruiting others to sell products than by selling the products.
The Oklahoma fund’s suit accused Herbalife of understating the percentage of sales going to retail customers.
It also alleged that Herbalife CEO Michael Johnson knew about the alleged deceptive activity, and took advantage of a share price he knew was inflated by selling more than $126 million of company stock.
Fischer, however, said in her Monday ruling that despite new allegations about Johnson’s involvement, the lawsuit failed to show fraud.
The shareholder suit was filed in April 2014 by investor Abdul Awad, and the pension fund took over as lead plaintiff three months later.
In May, another federal judge in Los Angeles approved Herbalife’s $15 million settlement with distributors who alleged the company misled them.
The nutritional supplements company is the subject of federal civil and criminal probes over pyramid-scheme allegations by the Federal Trade Commission, the Securities and Exchange Commission, the FBI and the attorneys general of New York and Illinois.
—Staff and wire reports