The FTC got it right on Herbalife settlement
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Last week, the FTC announced a settlement with Herbalife, a 36-year old California nutrition company. The FTC rejected the years-long PR campaign funded by hedge-fund manager Bill Ackman, who demanded that the FTC brand Herbalife a pyramid scheme and shut it down. Instead, the FTC did what we should expect from our government: it conducted a thorough investigation, weighed all of the facts, and upheld its statutory responsibility to enforce the law. The result: a settlement that addresses earnings misrepresentations made by some Herbalife distributors; provides an opportunity for Herbalife distributors who relied on misrepresentations to receive refunds; and, most importantly, incorporates Herbalife’s commitment going forward to stand as the embodiment and champion of best practices in the multi-level marketing industry. This outcome is good for consumers, good for business, and a good sign for our institutions of government that in this hyper-politicized election season, principled apolitical experts can come together and get good results for taxpayers.

After its exhaustive review, the FTC rejected Ackman’s core allegations that Herbalife is a pyramid scheme. I am a former FTC official with 27 years of consumer protection experience, including 12 years overseeing the FTC’s business opportunity enforcement and regulatory program. I have also observed Herbalife’s operations over the past year as an occasional consultant to the company. Based on my experience and observations, I am gratified to see this result. 

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For decades, courts and the FTC have held that businesses that pay recruitment rewards unrelated to the sale of an actual product are scams that should not be permitted to operate. Herbalife – a $4.5 billion publicly traded company with more than 8,000 employees, thousands of investors, four million members worldwide and 8 million American customers – could not be further from that model. The company pays no money for recruitment. It uses a network-marketing model that ties rewards for its sales force directly to the sale of products to ultimate users. Demand for its weight loss and nutrition products is genuine: close to 6 million U.S. households purchased an Herbalife product within the past year. Its premier product – the Formula 1 meal replacement shake – leads the industry in market share. And perhaps most compelling, survey after survey reveals Herbalife’s customers are overwhelmingly satisfied, both with the products themselves and the business opportunity the company provides to those willing to work for it.

Consumers benefit with the FTC’s announcement. Herbalife agreed to work with the FTC to continue to ensure they are well informed and robustly protected. Under this agreement, the company will explicitly document retail sales, to make clear which of their consumers want to pursue the Herbalife business opportunity, to improve its already industry-leading compliance and member training efforts, and to enhance its consumer disclosures. While the reforms announced by Herbalife and the FTC are in large measure a continuation of business improvements the company was already making, I credit the Commission for ensuring the clarity of all disclosures so consumers clearly understand any commitments they take on.

And perhaps most encouragingly, with this settlement, the Commission has put in place new guidance for the growing number of companies and Americans who use the direct selling model to distribute their products and generate business opportunities for budding entrepreneurs. Under this agreement, I anticipate that companies and consumers in this space will have new rules of the road to follow to ensure the transparency of corporate business models and the robustness of necessary disclosures to Americans who seek a direct sales business opportunity.

Herbalife continues to lead the industry with these reforms. I’m encouraged that all direct sellers could soon follow suit. The FTC’s announcement is good for consumers, good for industry, and should remind us all of the exemplary work that continues in many of our institutions of government.


Eileen Harrington is a Former Acting Director, Deputy Director, Associate Director, and Assistant Director of the FTC’s Bureau of Consumer Protection (1987-2009), with direct responsibility for the FTC’s enforcement and regulatory oversight of business opportunities like Herbalife. She has been an occasional consultant to Herbalife over the last year.