Herbalife feels pinch of fine

BOSTON – After US multi-level marketing company Herbalife settled a probe of its sales practices with the US Federal Trade Commission last month, top executives assured investors the company would be able to thrive under the new rules.

The consumer protection agency had questioned the company’s sales methods.

Billionaire investor William Ackman in 2012 claimed the company was running a pyramid scheme, recruiting members with a promise of payment for enrolling others in distribution, rather than depending on the actual sale of its nutritional supplements and weight management products.

In its July 15 settlement, Herbalife agreed to restructure its US business so distributors were rewarded for sales rather than recruitment of sales agents and agreed to pay a $200-million (R2.9-billion) fine.

But Herbalife’s filings with the US Securities and Exchange Commission (SEC) painted a much less optimistic picture than its presentation to analysts and investors, according to a private investor who flagged the differences to the SEC this month.

Matthew Handley, an investor in Florida, said: “The things you say on the call and write in the filing have to match up, and I thought they just didn’t.”

Because Herbalife’s conference call transcript and its SEC filings are publicly available, law experts said the company probably did not violate the SEC’s disclosure rules.

Corporate filings are often more legalistic and technical than what executives say during presentations to analysts and investors, when they may sound optimistic about the company’s outlook, law professors and private lawyers noted.

“Securities laws say that you cannot lie,” said Yale law professor Jonathan Macey. “Reading these two documents (the filing and transcript of the conference call), would suggest they’ve changed their point of view.”

Herbalife spokesman Alan Hoffman declined to comment. –