Herbalife Nutrition is one of the leading global Multi-Level Marketing companies. It has its headquarters in Los Angeles, California. The company dates back to 1980 when Mark R. Hughes founded it. As of today, the company has operations in more than 90 countries with over 11,000 employees. As per the latest revenue records, the company has been creating revenue of over $5 billion.
Its main products are of high nutritional value, including weight management products, dietary supplements, personal care products, and spots nutritional products. Despite its success, the company has faced much criticism for being labeled a pyramid scheme. It has faced lawsuits from distributors, government agencies, customers, and consumer protection agencies. In this article, we shall discuss the nine most significant cases in the history of the company.
9. The FTC & Others vs. Herbalife, A counterclaim on Allegations That Herbal Tea Could Cure COVID-19
In march 2022, three government agencies, The Federal Trade Commission (FTC), Department of Justice, and Food and Drugs Association, sued Herbalife for ruining adverts that alleged that Earth Tea, one of its products, could cure COVID-19. They were also seeking imposition of penalties on the company for contravening the COVID-19 Consumer Protection Act. The three bodies were affirmative that the company had chosen to make such claims on its products without any scientific proof or backing.
In addition, the DOJ said that they would target the company and any other organization that was preying on vulnerable COVID-19 patients. The agencies were also seeking to shut down any of the company’s electronic or written platforms running the adverts. The judge hearing the matter entered a primary injunction as per the plaintiff’s requests awaiting to hear and determine the matter.
8. Test-Aankoop vs. Herbalife, Declaration of the Defendant as an Illegal Entity in Belgium
The plaintiff is a Brussels-based non-profit organization specializing in consumer rights protection. The plaintiff went to court to seek a declaration that the operations of the defendant were illegal in Belgium based on the nation’s Market Practices Act. Making its ruling in January 2012, the court observed that Herbalife was in breach of Articles 91, 4, and 99 of the best market practices and consumer protection on the pretext that it established, managed, and promoted its sales as a pyramid scheme. The leading judge observed that it was a pyramid scheme on the basis that consumers would earn money by just bringing in new customers other than the sale of its essential products. When challenged by the plaintiff to show the exact customer base, the company could not do so.
7. Herbalife (America) vs. Herbalways (India), Copyright Infringement Case
Herbalways Nutrition Private Limited of Jalandhar is the Indian equivalent of American Herbalife. F S Mann, a former employee of Herbalife, was behind the creation of Herbalways in February 1999. The latter filed a case in the Delhi High Court accusing the former of infringing its copyright rights. According to the Business Standard, the Court agreed with the plaintiff in January 2013. However, amid the proceedings, the parties agreed to settle the matter out of Court.
In the settlement, Herbalways admitted that it had violated Herbalife’s property rights, including but not limited to their trademarks, product packages, labels, literature, distribution kits, and printed materials. The defendant also conceded that its actions resulted in financial losses for the plaintiff. The settlement also dictated that Herbalways was supposed to obtain consent from Herbalife before using any of its properties. The financial payments made to the plaintiff have not yet been disclosed to the public.
6. Oklahoma Firefighters Pension & Others vs. Herbalife, A Win over ‘pyramid Scheme’ allegations
In one of the most extraordinary lawsuits brought against the company, the plaintiff and others went to court, suing the company for what they alleged was a consistent ‘pyramid scheme’ meant to deprive them of the opportunity to earn legitimate profits. The lead plaintiffs were the Oklahoma Firefighters Pension and Retirement System and the City of Atlanta Firefighters’ Pension Fund.
Dismissing the matter in March 2015, the presiding judge, Dale S. Fischer-a District Court Judge in Los Angeles, said that the plaintiffs failed to show that the questions they raised about the n defendant were based on a report by hedge fund manager William Ackman and other investigations and they had no basis at all. The reports had alleged that the company had manipulated distributors to a tune of $1 billion, and they were expecting the company to pay. Welcoming the ruling, Herbalife’s representatives said that it affirmed the strong fundamentals of their business model, which was committed to helping people and communities improve their nutrition.
5. Mali Nir vs. Herbalife Israel, A Case of Herbalife Products Causing Chronic Liver Disease ($725,000)
In March 2009, Mali Nir, an Israel woman, went to court seeking to be compensated by Herbalife Israel, an affiliate of the American company, alleging that after using their products, she developed chronic liver disease and that it meant that she would require a future transplant of the organ. She submitted to the court that the company never advised its consumers of the possibility that its products could result in irreversible damage to body parts.
Nir reported that she started using the company’s products in 1998, and the complications started in 2001. She also observed that after stopping using the products, her liver started to function better but still experienced problems related to cirrhosis, such as pain, chronic fatigue, insomnia, and fatigue. In addition, she was still relying on the expert opinion of Dr. Mayer Brezis, which demonstrated that her liver problems were attached to using the company’s products.
4. Dana Bostick & Others vs. Herbalife Company, Attempt to Manipulate Traders ($17.5 million)
It seems that the defendant has always conflicted with her distributors. The plaintiff and others went to court seeking compensation for what they termed a pyramid scheme by the company, which negatively impacted the amounts of profits they were supposed to get. The matter, which was concluded in November 2014, had taken 18 months in court. Without admitting liability, the company agreed that it would pay $15 million in cash in addition to $2.5 million for all products which had been returned to the distributors by customers. Under the agreement, the defendant was also compelled to make numerous changes to its business practices for the following years (at least three) to ensure that its distributors got a better deal.
The decision came at a time when short-term sellers accused the defendant of other medical services companies of running such schemes. They alleged that the companies were not only making money from their sales but also from new distributors they had recruited by requiring them to pay a certain amount of money before they could be allowed to sell the defendants’ products.
3. Securities and Exchange Commission (SEC) vs. Herbalife, A Case of Misleading Investors ($20 million)
According to the Natural Products Insider, the SEC entered into an agreement with the Herbalife Company in a case it had sued it for misleading investors by filling financial positions based on the wrong accounts of its business operations in China. The case resulted from the Department of Justice (DOJ) Versus Herbalife, Foreign Corrupt Practices Act Case (see separate part). SEC said that the company had deprived investors of valuable information which they could have used to evaluate risks in m, making investment decisions. Herbalife conceded that it had failed to disclose that it had cooked some of its records. Without admitting liability, it agreed to pay the amount of $20 million. This is another case where the company had been accused of the same offense.
2. Department of Justice (DOJ) vs. Herbalife, Foreign Corrupt Practices Act Case, ($123 million)
On August 28, 2020, the DOJ released a press statement reporting that Herbalife had agreed to $123 million to settle a matter in which it was accused of violating the Foreign Corrupt Practices Act. The attorney generals for New York and DOJ had alleged that the company had conspired to falsify books and records to conceal illegal payments made to Chinese government officials to get favorable trading conditions in their country. According to American laws, this is a criminal matter, and the company agreed to pay up to $55.7 million for engaging with foreign criminal elements.
According to DOJ officials, the plan had gone on for more than ten years, and it was being hatched under its Chinese subsidiary, Herbalife China. The investigation into the matter not only focused on paying the Chinese officials but also on how they had improperly influenced China’s government investigation into its affairs. The scheme was led by the then lead sales executive for Herbalife China, Li Yang.
1. The Federal Trade Commission vs. Herbalife, Attempt to Deceive Customers ($200 million)
In July 2016, Herbalife agreed to pay $200 million to settle a complaint brought forward by its distributors that it had been deceiving them about how much they could make when selling its products. According to the commission, distributors had to charge extra costs that were not in line with the rules of fair-trade practices on the company’s product to make little profits. In addition to the payment, the company was expected to make serious changes in its sales and distribution practices.
Initially, the case was likened to a pyramid scheme. However, during the proceedings, it came out that it was a pyramid scheme but a concentrated effort by the company to manipulate its distributors to get a raw deal. The case crumbled trade markets because most hedge fund traders bet the company would fall due to this complaint. While making the final offer, the company alleged that the claims by the commission were incorrect and only made the concession to concentrate on ensuring that its customers continued to get quality services.
An Analysis of The Lawsuits Against Herbalife Company?
A precise analysis of the cases against the Herbalife company reveals several features. One, the company has been in continuous conflict with regulatory bodies. Be it the Food and Drugs Association, the Fair Trade Commission, and the Department of Justice, the company has been under the scrutiny of these bodies, and many times investigations have caught it incorrectly. After five years of formation, the company grew very fast, but when investigations by these bodies started, the company’s growth rate started to be steady.
In addition, the company has found itself in ongoing litigation with its distributors. In addition, the company has also had a good share of its wins in court. Were it not for the judge siding with it in the Oklahoma Firefighters Pension & Others Versus Herbalife, A Win over ‘pyramid Scheme’ allegations, the company would have probably collapsed due to the enormous monies involved in this case. The company has also been a victim of infringement of copyright issues, as was the case of Herbalways of India.
These Lawsuits have severe implications for the company’s financial position, and Herbalife should take swift measures to contain them. Foremost, it needs to review its marketing and selling strategies. This will enable it to address the legal suits brought by the distributors, for they make a massive chunk of them. It must improve its compliance levels to address the lawsuits by various government agencies. The company should isolate and shame subsidiaries that are found committing illegal acts.
It is almost impossible for companies to run away from litigation. However, the suits recorded in the History of Herbalife Nutrition Limited have far-reaching implications for its public image. The company ought to carefully analyze emerging market demands and collaborate with constructive criticism to improve its services. In addition, it should refrain from issuing public statements that contradict the government’s position on several matters, as it did in The FTC & Others Versus Herbalife, A counterclaim on Allegations That Herbal Tea Could Cure COVID-19. Lately, Herbalife must understand that, with the increased consumer protection awareness, the class lawsuits may spill over and form the bases on which several states and individuals may start using it.