Herbalife Wins Pyramid Scheme Lawsuit, Federal Judge Issues Dismissal

Herbalife Lawsuit Dismissed

Herbalife Ltd and its CEO have been victorious in their attempts to have a pyramid scheme lawsuit dismissed in Federal Court.

US District Judge Dale Fischer in Los Angeles, dismissed a similar complaint in March and 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 the move by CEO Michael Johnson’s to reduce his own Herbalife stake by a net 12% over roughly one year 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 multilevel marketing company and illegal pyramid scheme,” Fischer wrote.

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

Herbalife did not immediately respond to requests for comment but has denied any wrongdoing since the beginning of the lawsuit.

A pyramid scheme seeks to pay contractors more for recruiting other members in place of actually selling products.

Outside of the lawsuit, Billionaire hedge fund manager William Ackman has also accused Herbalife of being a pyramid scheme. His company made a $1 billion bet against the supplements company.

In May Herbalife paid out a $15 million settlement with distributors who said the company misled them.

Herbalife shares are up 0.1% to $50.66 in Wednesday trading.

You can follow the case at: Herbalife Ltd Securities Litigation, US District Court, Central District of California, No. 14-02850.