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."