Herbalife Nutrition Ltd. has announced that it has agreed to pay $123 million to settle criminal and civil charges that it bribed Chinese officials and media agencies and falsified its records to strengthen its foothold in China, the U.S. Department of Justice disclosed, Friday.
The popular multi-level group, engaged in the selling and marketing of health and nutirional supplements, entered into a deferred prosecution deal with federal judges in Manhattan and admitted that it has connived to contravene policies of the Anti-Bribery Law or the Foreign Corrupt Practices Act.
The Los Angeles-based company has also reached a parallel settlement with the U.S. Securities and Exchange Commission. According to prosecutors, Herbalife conspired to offer corrupt payments to Chinese government officials that included entertainment, food, and junkets to acquire selling permits from 2007 to 2016. Herbalife also bribed a government-run media agency in order to eliminate "negative reports about Herbalife China," authorities disclosed.
The networking firm, which operates in mainland China through a group of auxiliaries, had to obtain certain licenses in order to directly sell its products in the country through local and autonomous sales representatives, court settlement documents showed. The company refused to immediately respond to a message seeking comment.
The company has long been entangled in various legal proceedings and regulatory actions with regards its trade and business practices, which some analysts said is very similar to a pyramiding scheme. Authorities noted that Herbalife has also agreed to repay ill-gotten gains worth over $67 million including prejudgment interest to the SEC.
Shares of the nutrition company plunged to $43.01 from $49.74 after news of the bribery charges were announced. After a short session recess, Herbalife shares climbed to $48.78 following the settlement updates. The company has previously settled $20 million in payments linked to charges of fraud by the SEC, which found the company misleading investors about its China operations.
Authorities filed a related corruption lawsuit last November versus Yanliang Li, who was in-charge of Herbalife's business in China, and Hongwei Yang, who led the group's external affairs division. The two company officials, facing charges of conspiracy to violate the FCPA, are Chinese citizens and they remain at large.
Based on regulatory documents, nearly 20 percent of Herbalife's total revenue of $4.5 billion in 2016 comes from China. Meanwhile, analysts said that as the company's stock has performed positively in the last few years, bribery and fraud settlements definitely will have a broad negative impact on the business.
