Herbalife Settles Bostick Class Action Case

    Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.

    Herbalife announced its settlement to a class action lawsuit. The case was filed within months of Bill Ackman’s initial presentation where he announced his short position, so it could be an example of a law firm seizing on “blood in the water.” But I digress…

    The settlement basically amounts to two things: (1) $15,000,000 in cash for product refunds and remuneration for excessive business expenses (with $5M of that fund going to the lawyers); and (2) Several reforms to Herbalife’s marketing practices. Candidly, Herbalife is already doing most (if not all) of the reforms required as part of this settlement. The cash portion of the settlement was quite smaller than I anticipated, given the size of Amway’s settlement to a similar lawsuit a few years ago ($60,000,000).

    Already, there’s a group that’s announced they’re going to oppose the settlement. Brent Wilkes, the director of the League of the United Latin American Citizens (“LULAC”) said via a NY Post Article, “We plan to object to the settlement because it won’t begin to pay for the true damages that Herbalife has caused this class.” On a related topic, I have for a few months suspected that Bill Ackman promised to contribute some of his gains (if the bet goes his way) to various civic organizations. I suspect that LULAC is on that list. I sent both Brent Wilkes and LULAC a message via Twitter on Monday morning asking if any funds were promised. I have yet to receive a response. The question is relevant, in my opinion, because it’s important for all material facts to be fully disclosed. If there’s financial motivation in the background, the public deserves to know so the attacks can be judged accordingly. Again, it’s an unconfirmed suspicion. When I get a response, I’ll update the article.

    UPDATE: See below. Brent Wilkes denies having any financial motivation in his attacks against Herbalife.

    The required corporate reforms are included below. h/t to Seeking Alpha contributor, Ben_Nimaj for typing it up.

    1) Simplified Pricing Structure: combine “Package & Handling” and “Order Shipping Charge” into a single “Shipping & Handling” charge

    2) Differentiate “Members” and “Distributors”

    3) Discourage members from incurring debt to buy product

    4) Pay return shipping charges for legitimately returned product

    5) Prohibit members from selling “leads” to or purchasing “leads” from other members

    6) Prohibit the purchase of product as a condition of being a member

    7) maintain procedures for enforcement of these and other rules, ie. implement a member compliance department

    8) Include the Statement of Average Gross Compensation (SAGC) of member with any membership application

    9) Require any applicant to actually acknowledge having reviewed the SAGC

    10) The SAGC must contain the total number and percentage of all members who do not receive any compensation payment directly from Herbalife, [not just numbers from members that actually made money].

    Bostick v Herbalife_Preliminary Settlement by kevin_thompson

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      Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.

      • Go KT!! Better disclosure is definitely in order.

        • Kevin Thompson

          And the ironic thing is that more disclosure has ZERO impact on enrollments. I see companies everyday avoid disclosures because of fear of souring enthusiasm. It’s not true.

      • I just read through the policies over at Herbalife and there are several I really liked including the ones above.

        And I agree Kevin I think the whole community is going to clarify what a customer only is .vs a distributor/customer is.

        Although I hate that this was caused by some lawsuit, I still stand by my conviction that Herbalife will become the standard for all direct selling companies shortly.

        • Kevin Thompson

          I do remember you making that statement VERY early in the Herbalife / Ackman debacle. I think you’ll be proven right.