Tuesday, 4 December 2012


Herbalife Settles Suit Filed by State on Medical Claims

October 16, 1986|JUBE SHIVER Jr. | Times Staff Writer
Herbalife International, which has been criticized for the way it markets its controversial weight-loss pills and powders, agreed Wednesday to pay $850,000 to settle allegations by the California attorney general's office that it had made false medical claims.
The agreement, which state officials call the largest civil damage penalty of its kind, will require Herbalife to "make major changes in its (product) representations" and "control future behavior so that the wrongs that we perceive don't continue," said Albert Norman Shelden, a deputy attorney general. "They are not going to be making the claims they had made in the past regarding the efficacy of various herbs and weigh-loss products."
The $850,000 will pay for reimbursement of attorney's fees, investigative expenses and civil penalties, government officials said.
By settling, Los Angeles-based Herbalife, which has said it has a sales force of 800,000 people and annual revenue of $500 million, has resolved the last of a wave of government inquiries and legal proceeding that had cast a shadow over the 6-year-old company and slowed its meteoric financial growth.
Besides the California attorney general, Herbalife has faced and settled inquiries from the Canadian Ministry of Health and Welfare, two U.S. congressional panels and the federal Food and Drug Administration, which had been investigating Herbalife for four years for six alleged violations of the Food, Drug and Cosmetic Act in 1982, said Herbalife's lawyer, Conrad Lee Klein.
However, Herbalife spokesman Jack Lund declined to comment on the outcome of any of the actions, saying that the company would issue a complete statement on the resolution of the various government actions today.
Wednesday's agreement stems from a civil lawsuit filed March 6 against Herbalife by the California attorney general, the state Department of Health and the district attorney of Santa Cruz County. The government alleged that Herbalife made false medical claims about some of its products and employed an illegal pyramid-type scheme to market them.
Herbalife's diet and nutritional supplement plan involves replacing two meals a day with two 160-calorie liquid shakes. A third meal was to consist of a variety of generally low-fat foods that the company recommends, but no calorie amount is specified.
Herbalife product literature also instructed dieters to take an array of herb-based vitamins and minerals "to ensure proper weight control." Among the ingredients are vitamin B6, lecithin, senna leaves, kelp, chickweed and dandelion.
The settlement agreement reached Wednesday, however, would restrict several advertising claims surrounding Herbalife products.
The company could not represent that its "Cell-U-Loss" product contains herbs that on their own naturally eliminate "cellulite" or that the product directs weight loss to particular portions of the body. Herbalife also agreed not to claim that its products "contain herbs that in and of themselves naturally curb the appetite or burn off calories."
In addition, Herbalife agreed to disclose that there is caffeine in its N.R.G. product. With respect to allegations that it maintained a pyramid-type selling scheme, Herbalife agreed to maintain a system "to show that commissions, bonuses, overrides and/or advancements that participants in their marketing program received are based on retail sales."

Herbalife Agrees to Pay $850,000 Penalty (1986)

Stephen Barrett, M.D.In 1986, 
Herbalife International, Inc., and its president Mark Hughes, agreed to pay $850,000 to settle charges by the California Attorney General that the company made false medical claims and engaged in an illegal pyramid-style marketing scheme. Herbalife has been selling its products through a multilevel marketing program in which the amount of money received by its distributors depended upon the amounts purchased by them and by those whom they recruit as distributors. The Attorney General's suit, filed in 1985, cited the following questionable claims made for Herbalife products:

  • Slim and Trim Formulas comprise an effective weight loss program which can produce a typical weight loss of 10-29 excess pounds a month.
  • Cell-U-Loss can attack "cellulite," eliminate inches, suppress appetite, improve circulation, and help many other conditions.
  • Herbal-Aloe can aid digestion, "heal" and "cleanse the system."
  • N.R.G. can increase energy, increase mental alertness, and provide a "nutritional lift." (The fact that caffeine is one of its active ingredients was not disclosed.)
  • Lifeline aids the cardiovascular system.
  • Schizandra Plus can combat damage that leads to premature aging.
  • Tang Kuei is effective against hot flashes and can help the regularity of the menstrual system and relieve menstrual disorders.
  • Flora-Fiber "scrubs and cleanses" the intestine with fiber and prevents disease.
  • K-8 stops "induced depression" and "elevates your mood so you can handle stress."
The suit also charged:
  • Early editions of the Herbalife Official Career Handbook made illegal claims that various herbal ingredients were effective against more than 70 diseases and conditions. Although most of these claims were deleted in subsequent editions of the handbook, the company had not replaced the original pages sent to distributors with the revised pages or asked these distributors to destroy them.
  • Similar testimonial claims were made in company broadcasts over cable television.
  • To attract new distributors, the TV programs and company magazine contained stories of individuals who made large amounts of money by building large networks of Herbalife distributors. These representations are misleading because there is no reasonable basis to assert that most people who become distributors will earn large sums.
  • Although the company offered a "full warranty" on all of its products, customers who tried to invoke the warranty were often thwarted in their efforts by the defendants.
The court order settling the case, dated October 14, 1986, forbids representations without reasonable basis that:
  • Herbalife products contain herbs that can curb appetite, burn off calories, or cleanse the system.
  • Product users can lose weight without reducing caloric intake.
  • Cell-U-Loss can eliminate "cellulite."
  • Other products or their ingredients are effective as specified in the Attorney General's complaint.
The court ordered strict limits on testimonials and said that the caffeine content of N.R.G. should be disclosed in the career book and on the product's label. It also ordered Herbalife to change its marketing program so that distributors can profit only from retail sales and are discouraged from maintaining (and possibly becoming stuck with) large product inventories in order to qualify for bonuses.
The $850,000 penalty-payable over a five-year period-was assessed to reimburse the state for costs, attorneys' fees, expenses of investigation, and other expenses. Mark Hughes was ordered to post a $400,000 security deposit to cover possible default by the company.
On December 3, 1986, The Wall Street Journal reported that Herbalife had merged with a Utah-based shell corporation and plans to raise $14 million with a public stock offering. The company netted $7.6 million on sales of $115.7 million during the first half of 1986 and $12.4 million on $462.9 million of sales in 1985.

Herbalife Says All Queries Into Tactics Now Resolved October 17, 1986|JUBE SHIVER Jr. | Times Staff Writer

The president of Herbalife International, the Los Angeles-based diet and food supplement company, said Thursday that all government inquiries into the company's controversial marketing methods for its pills and powders have been resolved.
Herbalife President Mark Hughes said the experience "has given us a deeper understanding and a greater appreciation for the crucial roles" that the Food and Drug Administration, the California attorney general's office and the state Department of Health "play in protecting the safety of the American consumer."
For more than 18 months, Herbalife has faced a wave of government inquiries and legal proceedings initiated by the federal Food and Drug Administration, the Canadian Ministry of Health and Welfare, two U.S. congressional panels and the California attorney general.
Herbalife agreed Wednesday to settle the last of the claims by agreeing to pay California $850,000 to settle allegations by the state attorney general's office, the state Department of Health and the Santa Cruz district attorney that it had made false medical claims in marketing its diet and nutritional supplement products.
Thursday, Hughes released a letter from John M. Taylor, acting associate FDA commissioner for regulatory affairs, detailing the results of an Oct. 10 meeting at which the two men agreed that Herbalife would discontinue marketing Tang Quei Plus, a tablet intended for the temporary relief of menstrual cramps, and K-8, a tablet promoted for its calming effect, after all existing supplies are sold.
The FDA had alleged that although the two products "do not pose any safety concerns . . . the therapeutic claims made for those products cause" the FDA to object to their continued sale.
Hughes said that the tablets would have required approval by the FDA in order for the firm to make any claims about their effectiveness. He said the FDA would have allowed the firm to continue marketing the products as long as no claims were made about them. Herbalife chose to stop marketing the products.

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