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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
- 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
- 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
- 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
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
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.
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This article was revised on November 12, 1999.