Herbalife to pay US$15 million to settle class action lawsuit

UNITED STATES (Reuters) – Herbalife Ltd would pay US$15 million to settle an 18-month battle over a class action lawsuit brought by a former distributor claiming that the nutrition and supplements company is running an alleged pyramid scheme, according to a US court filing.

The company would pay US$15 million in cash, plus up to US$2.5 million for product returns, according to the court filing that granted preliminary approval for the settlement on Friday last.

Under terms of the settlement, Herbalife would also make “numerous changes” to its business model for at least three years after the settlement receives final approval, the court filing said.

Short-sellers and other critics have accused companies such as Herbalife, NU Skin Enterprises Inc and USANA Health Sciences Inc of running pyramid-type schemes, questioning their sales model under which distributors make money not only from their own sales but from people they recruit as distributors. Final court approval is still needed.

Dana Bostick, a California housing inspector, filed the lawsuit in April last year, claiming that hundreds of thousands of other distributors have failed to make much money by trying to sell the products.

“The potential cost, as well as the distraction, disruption and burden of prolonged litigation on the company and its management team, led the company to decide that the terms set forth in the settlement agreement provided the best path for moving forward,” Herbalife said in a statement.

The company said the settlement did not contain an admission of liability or wrongdoing.

The product return fund would be available to distributors who file valid claims for the return of unused and unopened products, according to Friday’s settlement.