Herbalife to Pay $200 Million Over Claims of Misrepresentation

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Updated July 15, 2016 1:31 p.m. ET 41 COMMENTS Herbalife Ltd.▲ reached a deal to pay $200 million in a settlement with the Federal Trade Commission that will enable the company to avoid being classified as a pyramid scheme, a victory in its long-running battle with activist investor William Ackman. The settlement, announced Friday, is a dramatic twist in one of Wall Street’s biggest fights in recent years. It could worsen a dismal stretch for Mr. Ackman’s Pershing Square Capital Management LP, which has bet against Herbalife stock. Shares of Herbalife rose 12% to $66.70 in recent trading, bringing its gain to about 25% so far this year.

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The agreement will require the nutritional-products company to improve disclosures about distributors and will tie distributor compensation to actual retail sales. The settlement also will require Herbalife to verify, through receipts and other methods, that its product sales are legitimate. That will force the company to prove it has underlying users who drink its protein shakes, something it hasn’t disclosed and that was at the crux of the debate that Mr. Ackman stoked about its business model. But while the FTC agreement will cause shifts in Herbalife’s business, and possibly across the direct-selling industry, the commission isn’t accusing the company of being the kind of fraudulent pyramid scheme Mr. Ackman and others have claimed for nearly four years. “We focused less on the label than on making sure” the FTC’s legal case “alleged what we considered to be the core problem with Herbalife’s business practices,” said Ms. Ramirez, who contended the company engaged in unfair and deceptive practices.

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