Herbalife must change practices under $200 million FTC settlement

A settlement between federal regulators and Herbalife will not shut down the company, as hedge fund manager Bill Ackman had been urging for the last several years, but it will force the nutritional food supplement company to make major changes in its business practices.

“This settlement will require Herbalife to fundamentally restructure its business so that participants are rewarded for what they sell, not how many people they recruit,” FTC Chairwoman Edith Ramirez said in a news release detailing the settlement and announcing the filing of a complaint in federal court seeking a permanent injunction and other relief against the company.

The agreement with the FTC will require Herbalife to overhaul its system for compensating its salespeople and recording sales of its supplement drinks and other food products.

In the complaint filed in federal court in Los Angeles, the FTC said, “the overwhelming majority of Herbalife distributors who pursue the business opportunity make little or no money and a substantial percentage lose money.”

The move could set the stage for Icahn and others to take Herbalife private, an action that would make it difficult to determine the economic impact of the changes in business practices on Herbalife’s bottom line.