Herbalife, CEO prevail in ‘pyramid scheme’ lawsuit0
A federal judge dismissed a lawsuit accusing Herbalife Ltd (HLF.N) and Chief Executive Officer Michael Johnson of defrauding shareholders by misrepresenting that the weight-loss and nutritional products company’s complied with laws designed to prevent pyramid schemes.
U.S. District Judge Dale Fischer in Los Angeles decided on Monday that the Oklahoma Firefighters Pension and Retirement System failed to show that the defendants intended to deceive shareholders and materially misrepresented Herbalife’s business.
Fischer, who had thrown out two earlier versions of the lawsuit, dismissed the case with prejudice, meaning it cannot be brought again.
Herbalife shares were up 26 cents at $58.39 in Wednesday morning trading on the New York Stock Exchange.
The lawsuit is separate from the campaign against Herbalife by billionaire activist investor William Ackman of Pershing Square Capital Management LP, who in December 2012 announced a $1 billion bet against the Los Angeles-based company.
Herbalife has long denied that it is a pyramid scheme, which often occurs when participants earn more money by recruiting others to sell products than by selling the products.
The Oklahoma fund’s lawsuit accused Herbalife of “grossly” understating the percentage of sales going to retail customers.
It also said Johnson was closely involved in Herbalife’s day-to-day affairs, making him familiar with the alleged deceptive activity, and took advantage of a share price he knew was inflated by selling more than $126 million of company stock.
Fischer, however, said that despite new allegations about Johnson’s “hands-on” involvement, the lawsuit still failed to sufficiently allege fraud.
“Plaintiff has had multiple opportunities to correct shortcomings,” she wrote. “An amendment would be futile.”
Maya Saxena, a lawyer for the Oklahoma fund, did not immediately respond to requests for comment on Wednesday. Herbalife, in a statement, said it was “obviously pleased” with Fischer’s decision.
The lawsuit sought class-action status on behalf of shareholders from Feb. 23, 2011 to Dec. 19, 2012, when Ackman disclosed his short bet.
In May, another federal judge approved Herbalife’s $15 million settlement with distributors who said the company misled them.
The case is In re: Herbalife Ltd Securities Litigation, U.S. District Court, Central District of California, No. 14-02850.
Read more at Reuters