Herbalife Ltd. said a Belgian appeals court has overturned a lower-court finding that the Los Angeles nutritional products company operated an unlawful pyramid scheme.
Critics of the company had pointed to the lower-court ruling in Belgium two years ago as evidence that the company was a pyramid scheme that improperly rewarded its independent salespeople for recruiting others into the business.
The appellate court ruling, Herbalife said, shows that the company’s sales model is in “full compliance with the law.”
“Herbalife always believed that the first judgment contained factual errors and was based on misinterpretations of its direct-selling sales method, and was confident that the original judgment would be overturned on appeal,” Herbalife said Tuesday.
Investors liked the news, driving Herbalife shares up $4.80, or 6.7%, to $76.65. The company’s stock has soared more than 130% this year.
Herbalife has been under a microscope since activist investor Bill Ackman argued publicly nearly a year ago that the company operated a pyramid scheme that ultimately would be shut down by U.S. regulators.
He bet more than $1 billion that the company’s stock price would fall but later reduced the position at least 40% as Herbalife shares soared.
Ackman and others have called on the Federal Trade Commission to investigate Herbalife. They contend that most Herbalife distributors lose money while a select few profit, based on commissions from others they recruit into the business.
Herbalife has denied those allegations, noting that most of its distributors join the company to receive discounts on nutrition and weight-loss products they personally consume. The company said its business model is legal and used by several other multilevel marketing companies.
Ackman declined to discuss the appeals court ruling.