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Business

Herbalife avoids 'pyramid scheme' label

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Opening sequence

Business

Herbalife avoids 'pyramid scheme' label

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COMING UP:Herbalife avoids 'pyramid scheme' label

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Transcript

00:00:00
>> Bill Ackman's ego and his wallet taking a beating Friday. His billion dollar bet against Herbalife going further south. The Federal Trade Commission stopping short of supporting his claim that dietary supplement company Herbalife is a pyramid scheme. But forcing the company to cough up $200 million to avoid the damning label.
00:00:19
Reuters' US Investments Editor Jen Ablan.>> So this is a huge win for Herbalife and also for activist investor Carl Icahn. Now, we know that shortsellers including notable shortseller Bill Ackman has been in this feud. Not just with Herbalife but also with Carl Icahn in saying and accusing that Herbalife is a so-called pyramid scheme.
00:00:45
>> The victory sending Herbalife's stock surging to a one and a half year high, but Ackman doesn't come out a total loser just yet.>> To be fair, this is a complete, complete win for Carl Icahn on paper gains. But also a fairly good, good improvement triggered by Ackman, in terms of how Herbalife will conduct business going forward.
00:01:10
The way that they're compensating people and the way that they're going about doing their business is something that the FTC wants Herbalife to change.>> The company will now have to pay its individual distributors for actual sales and not just for the new sellers brought on board. Herbalife will also have to provide receipts for the actual sales.
00:01:30
Those changes are likely to impact the earnings it reports to investors every quarter, which could drive the stock down. As for that $200 million settlement, that will go to compensate consumers for losses suffered as a result of what the FTC called quote, unfair and deceptive practices, which backs up another Ackman complaint.
00:01:50
Despite the ruling Herbalife's future is still in doubt. The board has given Icahn the green light to just about double his stake. Leading some investors to speculate, he'll force Herbalife to go private or maybe even put itself up for sale.