Herbalife agreed to pay $200 million in consumer relief and overhaul its business practices in a Friday settlement with the Federal Trade Commission that enabled the nutritional supplement company to avoid being charged with operating a pyramid scheme and facing a forced shutdown.
The U.S. Federal Trade Commission opened a probe into Herbalife in 2014 following allegations by Ackman that the company was effectively a fraudulent pyramid scheme.
Herbalife sells popular protein shakes, nutrition, weight management and fitness products, but instead of selling these in stores like GNC, the products are sold via independent distributors worldwide.
But Ramirez said at a news conference that it would be inaccurate to say that the FTC determined Herbalife's practices were not a pyramid scheme. "Herbalife created an incentive structure that made it easy for people to invest, but impossible for most people to make any money".
A 42-page complaint for a permanent injunction filed in California federal court said Herbalife and its corporate entities "represent, expressly or by implication, that Herbalife distributors are likely to earn substantial income, including significant full-time or part-time income, from pursuing a retail-based business opportunity".
The settlement, which calls for broad changes to Herbalife's direct marketing program, contains no admission of wrongdoing and the company said in a press release that it believed numerous allegations by regulators were "factually incorrect".
The settlements also "underscore our confidence in our ability to move forward successfully, otherwise we would not have agreed to the terms", Johnson said.
Still, Herbalife's 9.9 percent rally on Friday put Ackman further away from making money on his short bet.
The FTC also says that Herbalife must no longer allow its distributors to pay rent for the retail spaces the company uses out of their own pockets before spending a year working as a distributor and undergoing training. Unlike many of those that "shorted" Herbalife, we did not rely on one or two research papers prepared by non-experts.
Herbalife shares surged 10.34% to $65.50 after regulators said today that they have reached a settlement with the company.
While she acknowledged the FTC complaint did not charge Herbalife with operating a pyramid scheme, she said the investigation documented serious problems with the company's business practices. Herbalife, which also announced a $3 million settlement with the IL attorney general, said that it settled to avoid the cost and distraction of lengthy litigation.
According to her, the settlement required Herbalife to "fundamentally restructure is business so that participants are rewarded for what they sell, not how many people they recruit". Icahn said in a statement on Friday, "While Bill Ackman and I are on friendly terms, we have agreed to disagree (vehemently) on this subject".
A number of Wall Street whales, from George Soros to Michael L Gordon, at some point took sizeable positions in Herbalife against Ackman, who runs Pershing Square Capital Management. He also said the company should move on and look at possibly acquiring some competitors.
"Obviously, we are still here", Icahn said. He said more than 90% of Herbalife distributors earn nothing or even lose money.