TOPLINE
Herbalife, the nutritional shakes and supplements multi-level marketing company, entered into a deferred prosecution agreement with the U.S. Department of Justice on Friday and agreed to pay $123 million to settle charges it bribed Chinese officials, the third time in four years it’s been slapped with penalties by the U.S. government.
A worker stacks boxes of Herbalife shipments at a California distribution center in 2014.
Photographer: Patrick T. Fallon/Bloomberg
KEY FACTS
According to an indictment unsealed Friday in the Southern District of New York, prosecutors allege that Herbalife “engaged in a scheme to falsify books and records and provide corrupt payments and benefits to Chinese government officials” to grow the company’s business there between 2007 and 2016.
Herbalife agreed to pay $123 million in civil and criminal penalties and entered into a three-and-a-half year deferred prosecution agreement with the DOJ, which means that if the company meets the conditions of the agreement in that amount of time, then the charges will be dropped.
The settlement was previously proposed in May by Herbalife to the Securities and Exchange Commission, and Herbalife disclosed the payment in a Friday filing.
Friday’s indictment and settlement comes about a year after Herbalife agreed to pay the SEC $20 million to settle charges it misled investors on its China business model, and CEO Rich Goudis was ousted in January 2019 after an audio recording revealed he advised an employee to ignore expense account limits in China.
In 2016, Herbalife made headlines when it agreed to pay $200 million to the Federal Trade Commission to settle charges it deceived consumers into believing they could make significant money selling its products.
Herbalife did not respond to requests for comment by Forbes.
Crucial quote
“As admitted in the deferred prosecution agreement entered into today, Herbalife approved the extensive and systematic corrupt payments to Chinese government officials over a 10-year period to promote and expand Herbalife’s business in China,” Acting U.S. Attorney Allison Strauss said in a statement.
Big number
$343 million. That’s how much Herbalife will have paid in total fines to the federal government since the 2016 FTC settlement.
Key background
Herbalife has expanded to over 90 countries since it was founded in 1980 by Mark Hughes. Its business, multi-level marketing, is also referred to as direct selling. People who are interested in selling its products sign up as distributors, and can make money from sales, as well as recruiting new people to become distributors. Multi-level marketing companies are often referred to as “pyramid schemes,” although the FTC has no strict definition of what constitutes one. It’s also notoriously difficult for sellers to make money in direct selling. Herbalife was infamously a Wall Street battleground for billionaire investors Carl Icahn and Bill Ackman, with Ackman unsuccessfully shorting the company and publicly accused it of being a pyramid scheme. Their tussle over Herbalife was captured in the 2016 documentary Less Than Zero. Icahn and Ackman did not respond to requests for comment on Friday’s developments by Forbes.
Further reading
Herbalife, Younique, LuLaRoe And Other MLMs Suddenly Under Fire (Forbes)
Herbalife Pays SEC $20 Million To Settle Charges It Misled Investors (Forbes)