Six months after reaching a US$200 million settlement with Herbalife—the global nutrition company that sells its products through a vast distribution network—the FTC on Tuesday announced it was mailing checks to nearly 350,000 people who suffered losses operating Herbalife businesses.
The dispersals are coming from the Herbalife settlement fund and rank among the largest distributions for redress FTC has ever made in a consumer protection action, according to an agency news release. Most people receiving checks can expect partial refunds between $100 and $500, though the agency noted the largest checks exceed $9,000.
“We are pleased to announce that hundreds of thousands of hard-working consumers victimized by Herbalife’s deceptive earnings claims will receive money back," said Jessica Rich, director of the agency’s Bureau of Consumer Protection, in a statement. “Along with changes the company will make to its business structure, this is a win for consumers."
The refunds generally are being delivered to individuals who operated an Herbalife business between 2009 and 2015, and according to FTC’s news release, “paid at least $1,000 to Herbalife but got little or nothing back from the company." While Herbalife’s own statements reveal relatively few distributors become wealthy or earn much if any money, the government alleged Herbalife duped consumers into thinking they could reap substantial sums selling its products.
“Hundreds of thousands of people signed on for the Herbalife business ‘opportunity’—but most people made little or no money," wrote Lois C. Greisman, an FTC official, in a July 15 blog. “In fact, the FTC’s complaint shows how half of Herbalife’s ‘sales leaders’ earned less than $5 a month on average from selling the product. Instead, the incentives were to recruit more people who would then buy more product—whether or not there was a market to sell it."
Herbalife did not immediately respond Tuesday to a request for comment. But in an emailed statement to Bloomberg, the company said, “Our business in the U.S. remains strong due to the robust consumer demand for our science-based products. We look forward to continuing to build an even stronger company."
Also Tuesday, FTC released a document that could serve as a guide to other multi-level marketing (MLM) firms, including those selling beauty and nutritional products. Based on its settlement with Herbalife and a separate enforcement against Vemma Nutrition Company, FTC highlighted four themes.
· False or unsubstantiated earnings claims violate the FTC Act;
· Monitor the claims your distributors are making;
· At the heart of a legitimate MLM are real sales to real customers; and
· Make sure compensation and other incentives are tied to real sales to real customers.
“The FTC complaints against Herbalife and Vemma challenged compensation structures that rewarded distributors without regard to retail sales," the agency explained in the document. “The court-enforceable orders in those cases require the companies to dismantle those systems. In their place, Herbalife and Vemma must implement systems that incentivize participants to sell products to people outside the network."
“Is it time to take a closer look at your MLM’s compensation structure?" FTC asked.