Enforcement of Herbalife’s settlement with the FTC is certainly one of the more bizarre episodes of MLM regulation I’ve seen.

As part of
the settlement
, Herbalife agreed to “restructure” their business. And a big part of the restructuring was only paying commissions on actual retail sales going forward.

Considering retail sales volume was negligible to the point the FTC felt confident suing the company prior to the settlement, surely post-settlement Herbalife’s US MLM operations would be in trouble?

Not so.

Post enforcement of the settlement last May, Herbalife’s US revenue has fallen only by single digits quarter on quarter.

Outside of the stock market investor environment, this has led to speculation as to how Herbalife have curbed what should have otherwise been a dramatic decline in sales volume.

I might not have published anything on it myself, but this is certainly something I’ve personally wondered about.

Herbalife’s FTC settlement also saw the appointment of an Independent Compliance Auditor, to ensure adherence to the settlement terms.

In terms of public information, all we’ve been given is a
hilariously redacted compliance report
dated July, 2017.

Now, through a recent conference call, an explanation for Herbalife’s US sales revenue has surfaced.

Turns out Herbalife’s US affiliates have been fudging their retail sales figures.

Earlier this week Herbalife management informed affiliates that the Independent Compliance Auditor, was making changes to “documented volume” in Nutrition Clubs.

Presumably following an investigation, the Auditor found Nutrition Clubs were being used to fudge commissionable sales volume reported back to Herbalife.

Affiliates were doing this by recording recruited affiliates of other Herbalife affiliates as their own retail customers.

E.g. You and me are both Herbalife affiliates. You recruit John and I recruit Mary.

John and Mary buy Herbalife products to generate sales volume.

Under the FTC settlement I can’t record Mary’s purchases as my own commissionable volume because she’s an affiliate.

Likewise you can’t record John’s purchases for the same reason.

As per the discovered loophole, you record Mary’s purchases as personal retail volume and I do the same for John’s purchases.

Given the personal nature of affiliate recruitment, it’s easy to see how groups of affiliates working together to circumvent the FTC settlement could impact Herbalife’s US sales revenue figures.

And of course prior to being informed by the Compliance Auditor, Herbalife management
had no idea
this was going on.

In a memo sent to distributors after the call, Herbalife explained:

While we understand that these may be genuine consumptions, sales to another Distributor do not count toward Documented Volume to earn.”

As of May 1st, Herbalife affiliates will no longer be able to use the loophole to record fake retail sales volume.

Whether this will reflect Herbalife’s true retail figures going forward remains to be s

🤖 Quick Answer

How did Herbalife maintain revenue after FTC settlement restrictions on recruit commissions?
Following the 2016 FTC settlement requiring commission payments only on retail sales, Herbalife's US revenue declined minimally despite historically negligible retail volumes. Industry analysis suggests the company exploited regulatory loopholes, potentially through alternative compensation structures, inventory loading, or reclassification of transactions, allowing continued affiliate earnings from recruitment activities despite settlement enforcement mechanisms.

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