Herbalife to pay $20 million over SEC charges

Herbalife Nutrition has agreed to pay US$20 million to settle charges related to statements about its business model in China, the Securities and Exchange Commission announced Friday.

The SEC alleged Herbalife misled investors in U.S. regulatory filings by telling them its business in China model was different from that in other countries.

“Herbalife deprived investors of valuable information necessary to evaluate risk and make informed investment decisions,” said Marc P. Berger, director of the SEC’s New York Regional Office, in a statement. “When making disclosures to investors, issuers must ensure that those disclosures are accurate.”

Herbalife Nutrition consented to the SEC order without admitting or denying the allegations. In addition to paying $20 million, the company must cease and desist from further violations of the alleged conduct flagged by the SEC.

Herbalife Nutrition made the false and misleading statements in U.S. regulatory filings over six years, alleged the SEC. The company said its business model in China was different from other countries because while direct selling was authorized, multi-level marketing was not permitted.

“Herbalife’s representations were untrue because it employed a very similar compensation model in China to the one it employed in every other country,” the SEC stated in a news release. “Herbalife purported to pay its service providers based on hours worked. However, to calculate service providers’ eligible compensation, Herbalife first calculated individual compensation using its worldwide system, which is based on downline purchases. Herbalife then made certain immaterial adjustments, and ultimately paid the service providers compensation in amounts almost the same as the amounts calculated using the worldwide system.”

A company spokesperson did not immediately provide a comment in response to an email about the SEC’s announcement.

In 2016, Herbalife reached an agreement with another federal government agency—the Federal Trade Commission—to settle allegations that it deceived consumers into believing they could earn significant money selling nutritional supplements and other products. Herbalife agreed to pay $200 million and restructure its U.S. business model.

In Herbalife Nutrition’s most recent quarter that ended June 30, 2019, the company reported net sales of $1.2 billion, a 3.5% decrease over the prior year. Asia Pacific led worldwide sales with $299.6 million, followed by North America ($278.3 million), EMEA ($262.9 million), China ($187 million), Mexico ($121.2 million) and South and Central America ($91.1 million).