The feds fined nutritional supplement maker Herbalife about $123 million for running a decade-long bribery scheme to boost its business in China, officials said Friday.
The penalties from two federal agencies were just the latest legal entanglements for Herbalife, which in recent years has seen two former Chinese executives indicted and fought allegations that it was running a pyramid scheme.
Herbalife admitted to Manhattan federal prosecutors that it shelled out “corrupt payments” to Chinese officials from 2007 to 2016 to get crucial licenses allowing independent sales reps to hawk its products there, court records show.
The Los Angeles-based firm also used the bribes — which included meals and gifts — to influence Chinese probes of its compliance with local laws and to convince a state-owned media outlet to remove negative articles about the company, officials said.
Herbalife executives covered up the bribes by recording them as “travel and entertainment expenses” and keeping false certification records in the company books, authorities said.
Herbalife agreed to pay a $55.7 million fine under an agreement with the Manhattan US Attorney’s Office that allows the company to avoid criminal prosecution under the Foreign Corrupt Practices Act if it cooperates with federal probes and follows other rules, officials said.
The company agreed to pay more than $67 million under a separate settlement with the Securities and Exchange Commission that requires Herbalife to keep regulators posted on its compliance and “remediation” measures for three years.
“Herbalife’s inadequate internal accounting controls allowed an environment of corruption to exist in its Chinese subsidiaries for more than a decade,” SEC official Sanjay Wadhwa said in a statement. “A strong system of internal controls is vital for issuers, especially those with operations around the globe.”
Herbalife did not immediately respond to a request for comment Friday. The company’s stock price was recently down 0.8 percent at $49.25 after plunging more than 13 percent in early trading.
Carl Icahn, the company’s largest shareholder, sold off $717 million worth of Herbalife shares on Aug. 12, just about two weeks before Friday’s fines. In a statement that day, Icahn — who still retains about 15.5 percent of Herbalife’s stock — said he and his eponymous firm “continue to strongly believe in the great future of the company.”
The feds announced the fines about nine months after prosecutors announced criminal charges against Jerry Li and Mary Yang, who held high-ranking jobs at Herbalife’s China subsidiary.
Li and Yang, who are still at large, paid bribes to Chinese officials along with others at Herbalife and submitted bogus expense claims to get reimbursed, prosecutors have said.
In 2016, Herbalife agreed to pay $200 million to settle a Federal Trade Commission probe that found the company misled distributors into thinking they could make a living selling its nutritional shakes and other products.
But the agency did not explicitly label Herbalife a pyramid scheme despite claims from critics — such as hedge-fund tycoon Bill Ackman — that it was one.
Ackman’s $1 billion bet against Herbalife got him into a high-profile feud Icahn, who waded into Herbalife after Ackman shorted it, amassing a 22 percent stake and going on live TV to blast Ackman and his claims.
Ackman ditched his money-losing short position in 2017.