SEC Fines Herbalife $20 Mln For Misleading Investors About China Business Model

(RTTNews) - The Securities and Exchange Commission has ordered Herbalife Nutrition Ltd. (HLF), a direct-selling dietary supplements company with operations in over 90 countries, to pay $20 million to settle charges for making false and misleading statements about its China business model.

According to the SEC, in SEC filings between 2012 and 2018, Herbalife told investors that while direct selling is permitted in China, multi-level marketing is not, and that as a result, Herbalife's business model in China differed from that used in other countries.

The federal agency say's Herbalife's representations were untrue because it employed a very similar compensation model in China to the one it employed in every other country. 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.

"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. "When making disclosures to investors, issuers must ensure that those disclosures are accurate."