The FTC Case
In 2016, the Federal Trade Commission alleged that Herbalife, a multi-level marketing seller of nutrition products, operated in a way that rewarded participants more for recruiting new distributors than for actually selling product to real customers — the hallmark of a pyramid scheme, in which most participants lose money. Herbalife agreed to pay $200 million and to fundamentally restructure its compensation plan.
The FTC stopped short of formally labeling Herbalife a pyramid scheme, but the required changes — rewarding real retail sales, disclosing typical earnings — targeted exactly that concern.
The Restructuring and Distributor Suit
The settlement required Herbalife to base rewards on verified sales to genuine customers, maintain compliance policies for years, and give prospective members a Statement of Average Gross Compensation — a document that tends to show most distributors earn little. Separately, Herbalife settled a distributor class action, setting aside about $15 million in cash plus $2.5 million for product refunds for people who alleged they were drawn into an unsustainable model and stuck with unsellable inventory.
The average-earnings disclosure is significant because MLM recruitment often implies income potential the data does not support.
What to Know About MLMs
Before joining any MLM, ask for the income-disclosure statement and read it — it usually shows the large majority of participants make little or lose money after costs. Be wary of models that push buying inventory or recruiting over selling to real customers; those are the features regulators scrutinize.
Before You Act
Thinking About Filing a Claim?
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Herbalife Lawsuit: The FTC Pyramid-Scheme Settlement: Frequently Asked Questions
Answers to the most common questions about this case and your legal options.
Is Herbalife a pyramid scheme?
The FTC alleged it operated like one and required a $200 million payment and a business restructuring, but stopped short of formally declaring it a pyramid scheme. The changes target reward-for-recruitment concerns.
What did the Herbalife settlement require?
A $200 million payment, rewarding verified retail sales over recruitment, compliance policies, and giving recruits an average-earnings disclosure. A separate distributor class action added ~$15M cash plus $2.5M in refunds.
How do I evaluate an MLM opportunity?
Read the income-disclosure statement, which usually shows most participants earn little, and be cautious of models emphasizing inventory purchases and recruiting over real retail sales.
Legal Disclaimer
This article is general legal information, not legal advice, and does not create an attorney-client relationship. Case status, eligibility criteria, and any amounts described are as reported at the date shown and may change. Consult a licensed attorney in your jurisdiction about your own situation.