The Federal Trade Commission is forcing Herbalife, which it has charged with deception, to make major changes.
Herbalife agreed Friday to a settlement with the FTC.
As part of the deal, the company will have to pay $200 million to consumers who lost money due to the company’s unlawful practices, according to documents released by the FTC Friday.
According to court documents, FTC found Herbalife made false and misleading statements, and had unfair business practices.
“The FTC has charged Herbalife with deceiving hundreds of thousands of hopeful people who saw Herbalife’s promotional campaign in English and in Spanish and signed on for what they thought was a legitimate and lucrative business opportunity,” FTC Chairwoman Edith Ramirez said.
It’s hard to miss Herbalife’s presence in the Borderland. The multilevel marketing company directly sells diet and health products.
KFOX14 interviewed Herbalife enthusiasts at an outdoor fitness event.
“We come together, we love each other and help each other get results and get to the next level on the business,” said Jenna Beadles, of Las Cruces.
“My role is to spread the word of Herablife throughout the community,” said Jupe Boremann, of Las Cruces.
“There’s no secrets. They tell us how to be successful and get those results we want,” Beadles said.
In testimonial videos, brochures and opportunity meetings, the FTC found members brag about earning thousands of dollars a month, quitting their jobs and living lavish lifestyles.
At a meeting in El Paso, people lined up from autographs from top Herbalife sellers and members got up on stage and told the crowd how much money they made selling Herbalife. Some claimed to make tens of thousands of dollars a month.
But the FTC found half of Herbalife’s “sales leaders” earned less than $5 a month on average from selling the company’s products.
“The dream portrayed by Herbalife was an illusion. The vast majority found they could make little or no money selling Herbalife products,” Ramirez said.
Nutrition clubs could be found all around the Borderland, at one time. A 2012 report found more than 60 clubs opened in Las Cruces.
According to Herbalife’s own survey, cited in the FTC complaint, owners spent an average of $8,500 to open a club, but almost 60 percent reported making no money or losing money.
The FTC also determined members were not paid for actual products sold but were compensated based on how many people they could recruit to join the business.
As part of the settlement agreement, members must now earn a majority of their income through the sale of actual products and not through the recruitment of other members.
On Friday, reporters pressed the commissioner on why the FTC did not label Herbalife a pyramid scheme and asked whether that was part of the settlement agreement with the company, not to use the word “pyramid.”
Reporters questioned the commissioner on Herbalife’s claims that its company had been determined to not be a pyramid scheme.
“The word ‘pyramid’ does not appear in our complaint, true. The core facts that we have alleged and considered to be problematic with the compensation structure are set forth in detail in our complaint. I will leave to readers to draw their own conclusions. They were not determined not to be a pyramid,” Ramirez said.
In a statement Hearblife said, “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.”
Herbalife is now prohibited from “misrepresenting distributors’ potential or likely earnings. The order specifically prohibits Herbalife from claiming that members can ‘quit their job’ or otherwise enjoy a lavish lifestyle,” the FTC said in a release.
“Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices,” Ramirez said.
The court documents also show, “Consumers have suffered and will continue to suffer substantial monetary loss as a result of Defendants’ violations of Section 5(a) of the FTC Act. In addition, Defendants have been unjustly enriched as a result of their unlawful acts and practices. Absent injunctive relief by this Court, Defendants are likely to continue to injure consumers, reap unjust enrichment, and harm the public interest.”
The FTC said its next step will be to distribute $200 million to consumers who lost money because of Herbalife’s harmful practices.
As of now, the FTC has not determined how that process will work or how long it will take.