Herbalife International of America, Inc.

What distributors actually earned

The FTC alleged Herbalife told people who joined that they could quit their jobs, earn thousands of dollars a month, make a career-level income, or get rich, while the overwhelming majority of distributors pursuing the business opportunity earned little or nothing.

The specifics from the complaint:

• The average reward payment received by more than half of the distributors known as “sales leaders” was under $300 for all of 2014
• By Herbalife’s own survey, Nutrition Club owners spent an average of about $8,500 to open a club, and 57 percent reported making no profit or losing money
• The small minority who did make a lot of money were compensated for recruiting new distributors, regardless of whether those recruits could sell anything
• The majority of distributors stop ordering within their first year, and nearly half the entire distributor base quits in any given year

The unfairness charge

Beyond the earnings claims, the FTC charged that the compensation structure itself was unfair, because it rewarded distributors for recruiting others to join and buy products in order to advance, rather than in response to actual retail demand.

The restructuring, which is the real remedy

The order requires Herbalife to rebuild its compensation system around retail sales:

• Separate “discount buyers” from business opportunity participants, with discount buyers ineligible to sell or earn rewards
• At least two-thirds of rewards must be based on tracked and verified retail sales, and no more than one-third on other distributors’ limited personal consumption
• Companywide, at least 80 percent of product sales must be to legitimate end users or rewards must be reduced
• No incurring premises costs for Nutrition Clubs before completing a first year and a training program
• An Independent Compliance Auditor, paid for by Herbalife, monitoring compliance for seven years and reporting to the Commission

The order also bars claiming that members can quit their job or enjoy a lavish lifestyle, and imposes a $200 million judgment for consumer redress.

In January 2017 the FTC mailed checks to nearly 350,000 people, one of the largest redress distributions it had made in any consumer protection action. Refunds generally went to people who ran a business between 2009 and 2015 and paid at least $1,000 while getting little or nothing back. Most checks were between $100 and $500, the largest exceeding $9,000.

What is not established

A stipulated final order resolves the allegations without any admission or finding of wrongdoing.