Herbalife settles class action for $15 million

By: The VNN Team  //  Legal, US News

by Carol Thompson

Herbalife, the multi-level marketing nutrition company has settle a class action lawsuit brought by one of its former distributors.

The $15 million settlement represents the end of a lawsuit filed April 2013 by former distributor Dana Bostick, claiming he couldn’t sell his products because distributors who are higher up the chain receive a bigger discount than he did on the products they purchased from Herbalife. Bostick also claimed Herbalife’s structure systematically rewards recruiting other distributors over retail sales.

Bostick alleged violations of California’s Endless Chain Scheme Law, as well as the state’s laws against unfair competition and false advertising. He also accused the company of violating the U.S. Racketeer Influenced and Corrupt Organizations Act.

The $15 million settlement fund is for distributors who joined Herbalife “primarily to pursue a business opportunity and not primarily for personal and/or family consumption of Herbalife products,” and who lost money on Herbalife products, according to the court filing. A court hearing will be held in December to consider approval of the settlement agreement.

The problems don’t end for the company with the settlement agreement.  The U.S. Federal Trade Commission is probing the Los Angeles-based company based on allegations by billionaire hedge-fund manager Bill Ackman  that the company misleads distributors, misrepresents sales figures and sells a commodity product at inflated prices. Ackman has referred to the company as a 24 billion dollar scam. “The fraud is affecting more and more people,” said Ackman. “It is time to shut the company down.”  The company has repeatedly denied Ackman’s allegations.

According to Business Insider, Herbalife (HLF) is down 14 percent this morning after the company issued their second consecutive earnings miss and guided down the current quarter eps and sales estimate (Per Bloomberg: Sees 4Q adj EPS $1.30-$1.40, est. $1.69; sees 4Q sales down 5%-8%, est. up 8%).  At the moment, the decline is slightly shy of  the options market’s 15 percent implied move, but inline with the average over the last four quarters.

Herbalife’s website touts the company as having the best nutrition and weight management products in the world. “We are a global nutrition company that has helped people pursue healthy, active lives since 1980. Our products are available exclusively through a network of Independent Herbalife Members in more than 90 countries.”

Image: Flickr/Business Cards Zone