Herbalife Ltd. (NYSE:HLF) informed that it won dismissal of ongoing shareholder lawsuit that alleged its marketing practices and business structure. The shareholders stated that nutritional supplements and weight Loss Company violated the law due to which they suffered losses. The plaintiffs failed to prove that charges by activist investor Bill Ackman were justified. Ackman stated the company as a pyramid scheme. Such schemes are stated illegal as they ultimately crumple when there is no entity or group to recruit.
In a verdict dated March 16, Dale Fischer, a U.S. District Judge stated shareholders did not prove that Herbalife inflated its share price by stating itself as a lawful multi-level marketing company. As no fraud was proven, the shareholders cannot state that losses were a result of company’s perceived misrepresentations. Herbalife Ltd. (NYSE:HLF) welcomed the judge’s decision and stated that the company strongly believes in the strong fundamentals of its core business model.
The shareholders who sued Herbalife include Abdul Awad, the City of Atlanta Firefighters and The Firefighters Pension and Retirement System. The attorney for the pension funds said that her clients were evaluating whether to revise the complaint, and if they want to change they can do it by April8, 2015.
The case against Herbalife relied heavily on charges made by Ackman in a presentation last year. He discussed nutrition clubs and private settings where company’s distributors offer the products like weight-loss shakes and also recruited new members. He alleged that the clubs focused more on recruiting activities instead of selling company’s products, indicating that they are a part of pyramid scheme. Ackman tried to convince other investors to bet against nutritional supplements and weight Loss Company. However, the company always denied Ackman’s charges and stated that it operates like a multi-level marketing firm similar to Avon Products, Inc. (NYSE:AVP), Amway and Mary Kay.