Rumors of an FTC investigation into Herbalife
began
back in 2013 and here at BehindMLM we’ve been covering the story diligently ever since.

Today a conclusion to the saga is in sight, with news that the FTC has fined Herbalife $200 million dollars for being a pyramid scheme.

About an hour ago the FTC announced they have reached a settlement agreement with Herbalife.

The FTC
allege
Herbalife’s

compensation structure was unfair because it rewards distributors for recruiting others to join and purchase products in order to advance in the marketing program, rather than in response to actual retail demand for the product.

Herbalife’s compensation program incentivizes not retail sales, but the recruiting of additional participants who will fuel the enterprise by making wholesale purchases of product.

BehindMLM
reviewed Herbalife
in January 2013 and came to the same conclusion:

The single most problematic issue I see with the Herbalife compensation plan is 
the complete lack of incentive to sell products at a retail level
.

The FTC allege Herbalife’s operation as a pyramid scheme has caused ‘
substantial economic injury to many of its distributors
‘.

(Herbalife) deceived consumers into believing they could earn substantial money selling diet, nutritional supplement, and personal care products.

The FTC settlement will also see Herbalife ‘
pay $200 million to compensate consumers
‘. This figure was
leaked by Herbalife
back in May.

Looking forward, the settlement will see Herbalife unable to get away with primarily paying recruitment commissions at the expense of retail sales.

This settlement will require Herbalife to fundamentally restructure its business so that participants are rewarded for what they sell, not how many people they recruit,” FTC Chairwoman Ramirez said.

“Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make”.

Specifically, Herbalife’s new compensation plan will

reward retail sales to customers and eliminates the incentives in its current system that reward distributors primarily for recruiting.

(The settlement agreement) mandates a new compensation structure in which success depends on whether participants sell Herbalife products, not on whether they buy products.

This is a welcome change to Herbalife’s business model, which in my opinion has, by design, operated in the grey for far too long.

BehindMLM will publish a formal review of Herbalife’s new compensation plan when I’ve had a change to go over it in full.

For now, highlights of the plan revealed by the FTC include:

The company will now differentiate between participants who join simply to buy products at a discount and those who join the business opportunity.

“Discount buyers” will not be eligible to sell product or earn rewards.

Herbalife promised to
create a preferred customer class
in February, 2013. The class was supposed to be created in April the same year.

🤖 Quick Answer

What was the FTC's main allegation against Herbalife?
The FTC alleged that Herbalife's compensation structure was unfair because it rewarded distributors for recruiting new participants rather than generating genuine retail sales. The company prioritized wholesale purchases by recruits over actual consumer demand for products.

How much did the FTC fine Herbalife?
The Federal Trade Commission fined Herbalife $200 million dollars in a settlement agreement. This penalty concluded an investigation that had begun in 2013 regarding the company's business practices and alleged pyramid scheme operations.

What structural changes did Herbalife agree to make?
As part of the settlement agreement with the FTC, Herbalife agreed to restructure its business model. The company was required to modify its compensation system to eliminate incentives based primarily on recruitment activities rather than legitimate retail sales to consumers.

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