I have taken my time to provide an easy-to-read summary of the injunction for more casual readers and investors interested in the matter: • Herbalife must pay a $200 million penalty to the FTC within 7 days via electronic fund transfer. The money will be used to compensate victims of Herbalife's "business opportunity" scam which misled participants into believing that they could make reliable income by recruiting others into the scheme.
• Herbalife cannot seek to have the $200 million returned. The money now belongs to the FTC as of signing. If any money remains, it will be used for educating consumers or other related services relating to Herbalife's offenses. If money still remains, it will be deposited to the U.S. Treasury, and there is nothing Herbalife can do about it.
• "Business opportunity participants" and "preferred customers" shall now be accounted for separately.
• Preferred customers are buyers of discounted Herbalife products for personal use, but cannot sell products or recruit.
• Business opportunity participants may sell products and recruit, but they shall no longer receive any sort of compensation for simply recruiting new participants.
* For the sake of easier reading, I shall refer to "business opportunity participants" as
distributors and "preferred customers" as
members.
• Potential distributors are no longer required to purchase a minimum quantity of products. Furthermore, if a startup package is purchased, there will be no multi-level compensation given to the recruiter for the purchase.
• Essentially, there are no longer any incentives for distributors to recruit others into Herbalife. Money can only be made by legitimately selling products. Furthermore, sales must be verifiable, and there are new regulations on how sales will be documented. There are also mechanisms in place to discourage falsifying sales in an attempt to game the commission structure. Commissions are limited and can be earned only through selling products.
• Herbalife must now offer new distributors the option of a full refund for one year. If products are returned, Herbalife is responsible for all shipping and handling costs, and must also refund fees and taxes. Herbalife must also clearly disclose that distributors have this refund option available to them.
• The refund policy must be stated conspicuously on every invoice and receipt as well as websites and applications and promotional flyers and brochures.
• Herbalife is permanently prohibited from telling anyone in any shape or form that becoming a Herbalife distributor is a profitable endeavor. This especially includes telling members and audiences that participating in Herbalife business opportunities will result in a lavish lifestyle.
• Herbalife may no longer make income claims, whether part-time or full-time. No more telling people that they can quit their jobs and make more money than they ever dreamed possible if they became a Herbalife distributor. No more misleading "motivational speeches" about becoming financially independent, retiring rich, or earning millions of dollars. Herbalife may no longer say or imply anything of that nature in any shape or form.
• Herbalife is prohibited from even talking about how much money a particular distributor has made, as it is implying that others might have the same result or somewhere close to it.
• Herbalife is also permanently banned from giving any reasons as to why their distributors do not profit from Herbalife. For example, they cannot say that distributors fail because "they didn't work hard enough" or that "they gave up on themselves."
• Herbalife is permanently banned from using marketing material that shows nice houses, exotic cars, and private jets - or any content that implies or suggests that selling Herbalife will lead to an "improved lifestyle."
• Business opportunity participants cannot lease or buy land to create Herbalife nutrition clubs (where meetings have historically taken place) unless they have been in business for 12 consecutive months, completed mandatory training courses which are now required for all distributors, and have written a business plan for Herbalife management or the independent compliance auditor.
• Business opportunity participants must now keep track and disclose information such as:
- Source of funds used to cover start-up costs
- Where they intend to conduct business
- What products they are selling
- Their marketing strategy
- Estimates on monthly and annual volume of customers needed to be profitable
- Income forecasts
- Overhead and operating expenses each month for the first two years of operation.
(In short, a big headache for many of Herbalife's pseudo-entrepreneurs. They are likely to find all the regulation and disclosure too much of a hassle for an opportunity that is not even profitable.)
