Judge dismisses 'pyramid scheme' lawsuit versus Herbalife, CEO

Wed Jul 29, 2015 11:37am EDT
 
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By Jonathan Stempel

(Reuters) - A federal judge has dismissed a lawsuit accusing Herbalife Ltd (HLF.N: Quote) and its chief executive officer of misrepresenting the weight-loss and nutritional products maker's sales practices as legitimate when the company was "at its core" a pyramid scheme.

U.S. District Judge Dale Fischer in Los Angeles, who dismissed a version of the complaint in March, said on Tuesday the Oklahoma Firefighters Pension and Retirement System did not show the defendants defrauded shareholders by concealing the company's inability to track retail sales.

The judge also said that CEO Michael Johnson's reducing his Herbalife stake by a net 12 percent over roughly one year, while "undeniably large," did not raise suspicions, nor did disclosures that top executives expected "some form of disciplinary action" over the company's business practices.

"Herbalife openly disclosed that it was susceptible to legal challenge precisely because its practices occupy the gray area between legitimate multi-level marketing company and illegal pyramid scheme," Fischer wrote.

The lawsuit seeks class-action status from Feb. 23, 2011 and March 10, 2014. Fischer said the plaintiff may file an amended complaint by Aug. 27.

"We are disappointed with the ruling and will determine our next steps after consultation with the client," Maya Saxena, a lawyer for the Oklahoma fund, said in an email on Wednesday.

Herbalife did not immediately respond to requests for comment about the ruling. It has denied wrongdoing.

A pyramid scheme often occurs when participants earn more money by recruiting others to sell products than by selling the products.   Continued...

 
A Herbalife logo is shown on a poster at a clinic in the Mission District in San Francisco, California April 29, 2013. REUTERS/Robert Galbraith