ACKMAN: Actually, Herbalife is a pyramid scheme

Herbalife to pay $200M but avoids more serious charges

ACKMAN: Actually, Herbalife is a pyramid scheme

In late 2012, Ackman excoriated Herbalife with a 342-slide, three-hour PowerPoint presentation, saying the company was a scam and a pyramid scheme. Ackman, who has bet against the company's stock and waged an aggressive public relations campaign to turn other investors against Herbalife, also predicted that the firm would eventually founder under the weight of the FTC deal.

While FTC Chairwoman Edith Ramirez didn't call Herbalife a pyramid scheme, she also didn't say it wasn't one.

The Federal Trade Commission alleged in a complaint that the company had engaged in unfair and deceptive practices, in part by misrepresenting how much money people were likely to make if they signed on as Herbalife distributors.

In fact, the FTC's action and statements bolstered numerous assertions by Ackman, who began campaigning against Herbalife in late 2012.

Though Herbalife was ordered to restructure its USA operations and pay a $200 million settlement Friday, it avoided being classified by the U.S.as a pyramid scheme.

The settlements also "underscore our confidence in our ability to move forward successfully, otherwise we would not have agreed to the terms", Johnson said.

Former FTC commissioner Pamela Jones Harbour, who now leads Herbalife's compliance team, will oversee distributor compliance efforts, according to the company's release.

"In sum, Defendants' compensation structure incentivizes Distributors to purchase thousands of dollars of product to receive recruiting-based rewards and to recruit new participants who will do the same".

Icahn and Ackman have, well, differing views on Herbalife.

The FTC investigation focused on how Herbalife's sales structure depended on multiple levels of people buying its products and finding others to further redistribute them. If they don't meet that target, top distributors won't be getting the kind of lucrative incentive awards of the past.

The company, the FTC said, "deceived consumers into believing they could earn substantial money selling diet, nutritional supplement, and personal care products". Herbalife said that it disagreed with the FTC's criticism.

The new rules only apply to sales in the US, which account for only 20 percent of Herbalife's revenue.

"We focused less on the label", Ramirez said.

Despite ongoing investigation into the company over the last several years, Herbalife is the third-largest multilevel marketing company in the world, behind Avon and Amway, with $3.5 billion in annual sales, according to Network Marketing Central, a direct sales industry publication.

He has continued to claim that Herbalife was a fraud that misrepresented its sales. That unsavory term is precisely what the FTC is now not accusing Herbalife of being-but its agreement with the company will force Herbalife to pay a hefty fine and commit to restructuring its business, one in which its products are sold by its "members".

He added that Herbalife believes "many of the allegations made by the FTC are factually incorrect", but wanted to avoid protracted litigation.

Given the massive overhaul Herbalife is now under government orders to execute, and the requisite supervision as it does so, it remains to be seen whether Icahn increases his stake - and what's left of the business to strategize over.

Under the settlement, the FTC required Herbalife to change its compensation system-rewards to customers should be driven by retail sales not by recruiting. "We will not tolerate what has gone on".

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