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| Herbalife Settlement With F.T.C. Will Force Major Changes | Herbalife Settlement With F.T.C. Will Force Major Changes |
| (35 minutes later) | |
| A settlement between federal regulators and Herbalife will not shut down the company, as the hedge fund manager William A. Ackman had been urging for the last several years, but it will force the nutritional food supplement company to make major changes in its business practices. | A settlement between federal regulators and Herbalife will not shut down the company, as the hedge fund manager William A. Ackman had been urging for the last several years, but it will force the nutritional food supplement company to make major changes in its business practices. |
| The Federal Trade Commission, in announcing the settlement with Herbalife on Friday, had strong words for the company that call into question some of its longstanding distribution practices. | The Federal Trade Commission, in announcing the settlement with Herbalife on Friday, had strong words for the company that call into question some of its longstanding distribution practices. |
| “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,” Edith Ramirez, the F.T.C. chairwoman, said in a news release announcing the settlement and the filing of a complaint in federal court seeking a permanent injunction and other relief against the company. | |
| In settling with the F.T.C., Herbalife has agreed to pay $200 million for consumer relief, an amount it had previously disclosed it was likely to pay as part of any settlement. | In settling with the F.T.C., Herbalife has agreed to pay $200 million for consumer relief, an amount it had previously disclosed it was likely to pay as part of any settlement. |
| The agreement with the F.T.C. will require Herbalife to overhaul its system for compensating its customers and recording sales of its supplement drinks and other food products. | The agreement with the F.T.C. will require Herbalife to overhaul its system for compensating its customers and recording sales of its supplement drinks and other food products. |
| In the complaint filed in federal court in Los Angeles, the F.T.C. said, “the overwhelming majority of Herbalife distributors who pursue the business opportunity make little or no money and a substantial percentage lose money.” | In the complaint filed in federal court in Los Angeles, the F.T.C. said, “the overwhelming majority of Herbalife distributors who pursue the business opportunity make little or no money and a substantial percentage lose money.” |
| Herbalife, in a statement, said: “We announced a settlement with the F.T.C. that does not change our direct selling business model and will set new standards for the industry. We agreed to the terms and to pay $200 million because we simply wanted to move forward with our mission.” | Herbalife, in a statement, said: “We announced a settlement with the F.T.C. that does not change our direct selling business model and will set new standards for the industry. We agreed to the terms and to pay $200 million because we simply wanted to move forward with our mission.” |
| In the statement, Herbalife also took a swipe at Mr. Ackman and his Pershing Square Capital Management, saying it had been “under attack by an intransigent short seller hellbent on a misinformation campaign designed to destroy our company.” | In the statement, Herbalife also took a swipe at Mr. Ackman and his Pershing Square Capital Management, saying it had been “under attack by an intransigent short seller hellbent on a misinformation campaign designed to destroy our company.” |
| Mr. Ackman’s fund bet about $1 billion that Herbalife would be exposed as an illegal pyramid scheme and forced to shut down. He had said he expected the stock to go to zero. | Mr. Ackman’s fund bet about $1 billion that Herbalife would be exposed as an illegal pyramid scheme and forced to shut down. He had said he expected the stock to go to zero. |
| But on Wall Street, the settlement, despite the stinging language from the F.T.C., was being seen as a victory for Herbalife and a defeat for Mr. Ackman, whose big hedge fund has performed poorly this year. | |
| Shares of Herbalife were up 18 percent in early trading on Friday, to $70, a share. | |
| The settlement also is a big victory for Carl C. Icahn, the billionaire trader, who was one of Herbalife’s biggest investors and notably had taken an big bullish bet on the stock in opposition to Mr. Ackman’s bearish bet. | |
| In announcing the deal with the F.T.C., Herbalife said it had decided to let Mr. Icahn increase his ownership limit to 34.99 percent from 25 percent. The move could set the stage for Mr. Icahn and others to take Herbalife private, an action that would make it difficult to determine the economic impact of the changes in business practices on Herbalife’s bottom line. | |
| Mr. Icahn said in a statement, ”Now that the Company has reached a settlement with the F.T.C., it is time to consider a range of strategic opportunities, including potential roll-ups involving competitors, as well as other strategic transactions.” | |
| Mr. Ackman was not immediately available for comment. |