Two months after disclosing its talks with Federal Trade Commission regarding the possible way to settle pyramid scheme issue, Herbalife Ltd. (NYSE:HLF) finally agreed to $200 million settlement with FTC on Friday. The payment includes compensation for certain customers that bought products of Herbalife, and according to FTC, the details of the repayment plan will be decided later.
According to the Federal Trade Commission, Herbalife is not a pyramid scheme, however, the company need to make the payment and restructure their business. Edith Ramirez, FTC Chairwoman, said in a statement that by restructuring their business, “participants are rewarded for what they sell, not how many people the recruit.”
The agreement between Herbalife and FTC ended the two-year investigation of the accusation that Herbalife were running an illegal pyramid scheme, in which Herbalife made money by hiring sales people and selling their stakes, rather than selling the product itself.
Herbalife was willing to make the payment but didn’t show much regrets. "While the company believes that many of the allegations made by the FTC are factually incorrect, the company believes settlement is in its best interest because the financial cost and distraction of protracted litigation would have been significant, and after more than two years of cooperating with the FTC's investigation, the company simply wanted to move forward," The nutritional supplement marketer said in a statement.
Bill Ackman, who leads Pershing Chief Square Capital Management, suffered a great loss due to the settlement. He accused Herbalife of operating a pyramid scheme and his company invested $1 billion in a short bet against Herbalife’s shares when it was $47 in 2012. In addition, Carl Icahn, together with his company Icahn Enterprises, were permitted to increase the stake in Herbalife from the maximum of 25% previously to 34.99%.
After the settlement, Herbalife shares were up 14.5% in early trading on Friday.