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March 19, 2015
A judge on Monday dismissed a securities lawsuit that alleged Herbalife Ltd. is a pyramid scheme and misrepresented itself as a legitimate multi-level marketer (MLM). But the plaintiffs were granted under April 8 to file an amended complaint.
Abdul Awad, an Herbalife investor, sought to represent a class of investors in a case that claimed Herbalife and its executives inflated the stock before revelations showed the MLM is a fraud.
Herbalife welcomed the decision. “As we have consistently stated, we are confident in the strong fundamentals of our business model and remain committed to helping people and communities improve their nutrition," the company said Wednesday in a statement.
While an amended complaint cited certain disclosures including a presentation by Herbalife’s adversary hedge-fund billionaire Bill Ackman and media reports that Herbalife was under investigation by a number of government agencies, U.S. District Judge Dale Fischer said such evidence was insufficient to defeat a motion to dismiss the lawsuit. He also said presentations by Ackman’s Pershing Square Capital Management didn’t reveal anything that wasn’t already publicly available.
“Absent a disclosure of wrongdoing, announcements that agencies were investigating Herbalife only exposed the possibility of fraudulent conduct," Fischer wrote in his 14-page memorandum.
Fischer distinguished the Herbalife lawsuit from one involving the home health corporation Amedisys Inc. where a Senate Finance Committee report concluded that companies under investigation had been exploiting Medicare regulations. By contrast, the plaintiffs failed to allege a government probe concluded Herbalife is a pyramid scheme, he said.
“Given Herbalife’s express disclosures that its operations and business model render it susceptible to regulatory and private challenges, the absence of any findings that Herbalife is a pyramid scheme—the heart of Plaintiffs’ misrepresentation theory—materially distinguishes this case from Amedisys," Fischer wrote.
A number of government agencies are investigating Herbalife, but they have not condemned the company or otherwise issued any public statements beyond a few agencies confirming the probes had been initiated.
Associate editorial director, Natural Products Insider, Informa Markets Health and Nutrition
Josh Long directs the online news, feature and op-ed coverage at Natural Products Insider, which targets the health and wellness industry. He has been reporting on developments in the dietary supplement industry for over a decade, with a special focus on regulatory issues, including at the Food and Drug Administration.
Josh majored in journalism and graduated from Arizona State University the same year "Jake the Snake" Plummer led the Sun Devils to the Rose Bowl against the Ohio State Buckeyes. He also holds a J.D. from the University of Wyoming College of Law, was admitted in 2008 to practice law in the state of Colorado and spent a year clerking for a state district court judge.
Over more than a quarter century, he’s written on various topics for newspapers and business-to-business publications – from the Yavapai in Arizona and a controversial plan for a nuclear-waste incinerator in Idaho to nuanced issues, including FDA enforcement of the Dietary Supplement Health and Education Act of 1994 (DSHEA).
Since the late 1990s, his articles have been published in a variety of media, including but not limited to, the Cape Cod Times (in Massachusetts), Sedona Red Rock News (in Arizona), Denver Post (in Colorado), Casper Star-Tribune (in Wyoming), now-defunct Jackson Hole Guide, Colorado Lawyer (published by the Colorado Bar Association) and Nutrition Business Journal.
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