A top executive for Los Angeles-based Herbalife Wednesday denied assertions that the nutrition company’s future is in doubt following a $200 million settlement with federal regulators over allegations it deceived its customers and sales force.
“After more than two years of working with the FTC (Federal Trade Commission), I think we understand the terms of the settlement agreement very well,” said Alan Hoffman, Herbalife’s executive vice president of global affairs. “We would not have settled unless we had the greatest confidence in our ability to comply with the agreement and grow our business and we believe this will be proven out over time.”
Hoffman’s comments came in response to assertions by hedge fund manager Bill Ackman, who has denounced Herbalife as a global pyramid scheme and repeatedly called on regulators to shut the company down, sparking the FTC investigation.
In a conference call with investors Wednesday, Ackman said that in light of the FTC settlement announced last week, he now plans to push foreign regulators to investigate the company’s practices.
But he said the FTC settlement, while not labeling Herbalife a pyramid scheme, will still lead to the company’s demise, because federal authorities pointed to misdeeds by the company and ordered drastic changes in the way it operates.
“Herbalife has been shut down by the FTC. It just doesn’t know it yet,” Ackman said.
The FTC said last week that Herbalife misled people into becoming distributors or members by using videos and brochures showing mansions, luxury cars and boats, and telling participants they could expect to quit their jobs, earn thousands of dollars a month, make a career-level income or even get rich.
However, the “overwhelming majority” of distributors “earn little or no money,” according to the government.
The company issued a statement Friday saying that although it disagreed with many of the FTC’s allegations, it settled to avoid “the financial cost and distraction of protracted litigation.”
The settlement requires Herbalife to revamp its compensation system so that it rewards retail sales to customers and eliminates the incentives in its current system that reward distributors primarily for recruiting new participants.
–City News Service
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