bpperry/iStock/Thinkstock(NEW YORK) — The Federal Trade Commission has determined that Herbalife is not a pyramid scheme, but the company will pay $200 million to compensate consumers deceived into believing they could earn substantial money selling diet, nutritional supplement and personal care products.
According to a press release from the FTC, Herbalife had charged the multi-level marketing company of having an unfair compensation structure that rewarded distributors for recruiting others to join and purchase products in an effort to advance their marketing program, rather than in response to retail demand. FTC Chairwoman Edith Ramirez said in the release that the settlement would force Herbalife to “fundamentally restructure its business so that participants are rewarded for what they sell, not how many people they recruit.”
Herbalife will also have to “start operating legitimately, making only truthful claims about how much money its members are likely to make” and “compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices,” Ramirez added.
An FTC complaint alleged that Herbalife claimed people could expect to quit their jobs, earn thousands of dollars each month, make career-level income, or even get rich. Instead, the majority of distributors earn little to no money, the FTC says.
The average amount that more than half of the company’s distributors made in 2014 was under $300. Nutrition Club owners reported spending about $8,500 to open a club, with 57 percent reporting no profit or financial losses.
According to the FTC, Herbalife will differentiate between participants who get to purchase products at a discount and those who join the business opportunity — with discount buyers ineligible to sell product or earn rewards. They will also restructure compensation and require at least 80 percent of product sales to “legitimate end-users.”
The company is also prohibited from allowing participants to incue expenses associated with Nutrition Clubs before they have completed one year as a distributor and complete a business training program.
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