Herbalife Closer to Settling Case With FTC for an Estimated $200 Million
May 06, 2016 08:49 AM EDT
Herbalife stated that it is advancing in settling matters with the Federal Trade Commission (FTC). The FTC has been investigating the nutritional supplement marketer company over whether it is a pyramid marketing scheme. Herbalife's shares jumped after the company announced its progress with FTC.
Herbalife is closer to settling the matter with the FTC. According to USA Today, if the company settles with the FTC, it expects that the settlement includes not only monetary payment but also injunctive and other relief as well. In a statement, the company said that the best estimate of a settlement payment would be $200 million.
In a statement, a spokesperson for the FTC, Justin Cole, also noted that injunctive relief can be just as significant as the monetary payment obtained for consumers. The injunctive relief could also be more influential on a company's future operations.
"While there are a number of open issues, these discussions have progressed to an advanced stage, and the range of outcomes now includes litigation or settlement," said Herbalife CEO and Chairman Michael Johnson. The FTC has requested documents from the company dated back from 2009 to the present as a part of the investigation.
But despite that the company assures that it is making progress in talks with the FTC, Herbalife's CFO John DeSimone noted that they don't yet have an agreement. "What we have is the reasonable possibility of an agreement," DeSimone said. "There's still lots of things out things outstanding," he added, followed by an urge for investors to read the company's disclosure on that matter closely.
Forbes reported that the investigation into Herbalife's business practices is initiated by hedge fund manager Bill Ackman. For years, Ackman has been claiming that the company is operating as a pyramid scheme. His campaigning prompted the FTC to probe on the matter and start investigating.
Following the company's disclosure, Herbalife's shares soared as much as 15 percent in after-hours trading Thursday, as reported by New York Post. The disclosure also came along with the company's report of its first increase in quarterly sales in five quarters. In the first quarter, sales were up 1 percent over last year at $1.1 billion.
Herbalife is getting closer to settling its pyramid scheme case with the FTC. The company released a disclosure estimating that it might soon settle for about $200 million, ending the two-year investigation by the regulators. Herbalife's shares jumped significantly following the announcement.