Dietary supplement maker Herbalife will pay $20 million to settle charges with the Securities and Exchange Commission that it made false and misleading statements about its China business model in regulatory filings over a six-year period.
According to the SEC’s order, Herbalife, from 2012 through 2018, led investors to believe its compensation model in China differed from that used in other countries, which was untrue. Herbalife allegedly claimed to pay its service providers in China based on hours worked, but instead first calculated individual compensation using its worldwide system based on downline purchases.
As part of the scheme, Herbalife’s business in China allegedly pre-printed hours forms to give to its service providers with the number of hours for various specific services on the forms, instead of service providers themselves listing their hours or describing the services performed.
The SEC’s order finds Herbalife’s public statements to investors about service provider compensation were false and misleading with regard to information needed to correctly evaluate the risk of the company’s stock. Herbalife neither admitted nor denied the findings.
“When making disclosures to investors, issuers must ensure that those disclosures are accurate,” said Marc Berger, director of the SEC’s New York Regional Office, in a statement.
In a regulatory filing in February, Herbalife acknowledged its marketing plan in China was under investigation by the SEC. At the same time, the company said the SEC and Department of Justice’s investigation into potential violations of the Foreign Corrupt Practices Act with regard to its dealings in China was “proceeding.” The FCPA investigation is still ongoing.
Kyle Brasseur is the digital editor for Compliance Week, contributing to the editorial team while also handling social media and web-related content. His background includes expertise in user personalization in addition to senior editing experience.
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