Herbalife Ltd. announced Friday it had agreed to settle a class-action lawsuit brought by a former salesman who alleged the Los Angeles nutrition company was operating a pyramid scheme that victimized hundreds of thousands of people a year.
The lawsuit, lodged last year in federal court in Los Angeles, contends that Herbalife is a pyramid scheme in which the company’s independent distributors earn more money recruiting new sales people than they do selling its products.
A year ago, U.S. District Judge Beverly Reid O’Connell refused Herbalife’s request to dismiss the case, saying former Herbalife distributor Dana Bostick’s allegations were significant enough to proceed toward trial.
According to a brief statement from the company, the settlement agreement will resolve the lawsuit against the company.
“The company has been aggressively defending itself against the plaintiffs’ allegations set forth in Bostick v. Herbalife ever since the lawsuit was filed in 2013,” the company said. “Yet, 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.”
Details of the proposed settlement were not available.
“We are fully confident that we would have prevailed,” said Mark Friedman, general counsel of Herbalife. “Settling this matter, however, is in the company’s best interest as it allows us to put it behind us and focus on the future growth of the company.”
The company also has been defending itself against activist investor Bill Ackman, who runs Pershing Square Capital Management. Ackman also has described Herbalife as a pyramid scheme.
