After years of investigating, on July 15, 2016 the FTC announced a settlement with Herbalife. The FTC complaint charges that Herbalife participated in Unfair and Deceptive Acts or Practices in violation of Section 5 of the FTC Act, 15 U.S.C. § 45 by promoting a compensation structure that causes or is likely to cause harm to distributors, by making unsubstantiated claims about retail sales income earned by distributors, and by providing distributors the means to engage in fraud. Herbalife must pay $200 million in consumer redress and is ordered to restructure its business model as part of the settlement deal. While many in the media have claimed victory for Herbalife, it may be the critics that have claimed MLMs are pyramid schemes with no retail demand who actually have the last laugh.
Those MLMs with little retail demand for their products will collapse due to the new required rules for MLMs to abide by. MLMs must now be driven by retail sales, otherwise commissions will be reduced to lower levels. This means the top 1% of distributors who have large downlines will be taking a significant cut in their commission because the downline's personal purchases that don't get retailed to customers are not worth as much in commission anymore. This rule was made because distributors were primarily being rewarded for recruiting new distributors (whom end up being required to purchase product every month to participate) rather than for selling product to retail customers. I look forward to the eventual collapse of the MLM pyramid schemes and I thank the FTC for proving my arguments over the past decade to be correct.
Federal Trade Commission v. Herbalife International of America, Inc. - Stipulation To Entry of Order for Permanent Injunction and Monetary Judgement (Court Document)
Statement of the Federal Trade Commission - FTC v. Herbalife International of America, Inc. - July 15, 2016
Herbalife Will Restructure Its Multi-level Marketing Operations and Pay $200 Million For Consumer Redress to Settle FTC Charges
Company Must Tie Distributor Rewards to Verifiable Retail Product Sales And Stop Misleading Consumers about Potential Earnings
