Herbalife to pay $15 million to settle class action lawsuit

Fri Oct 31, 2014 8:53pm EDT
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By Devika Krishna Kumar

(Reuters) - Herbalife Ltd (HLF.N: Quote) would pay $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 U.S. court filing.

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

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 (NUS.N: Quote) and USANA Health Sciences Inc (USNA.N: Quote) 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 on Friday.

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

Herbalife gave Carl Icahn three additional seats on its board earlier this year, after the activist investor openly voiced his support for the company.   Continued...

The Herbalife logo is seen on a building housing some of their offices in downtown Los Angeles, California April 28, 2013. REUTERS/Lucy Nicholson