Herbalife says Belgian appeals court reversed pyramid scheme finding

Herbalife Ltd. said a Belgian appeals court has overturned a lower court finding that the company operated an unlawful pyramid scheme.

Critics of the Los Angeles nutritional products company had said the 2011 ruling in Belgium was evidence that the company improperly rewards its independent sales people for recruiting others into the business.

Herbalife said in a statement that a Belgian appeals court ruled that the company’s sales model “is in full compliance with the law.”

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“Herbalife always believed that the first judgment contained factual errors and was based on misinterpretations of its direct-selling sales method, and was confident that the original judgment would be overturned on appeal,” Herbalife said in a statement Tuesday.

“Herbalife continues to focus on supporting its independent distributors and their customers in Belgium, and the company remains committed to an open and transparent relationship with those distributors and customers, as well as regulatory authorities and all other stakeholders.”

Investors liked the news, driving Herbalife shares up $3.95, or 5.5%, to $75.80 in mid-day trading Tuesday. The company’s stock is up more than 130% this year.

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Herbalife has been under a microscope for the last year, with activist investor Bill Ackman arguing that the company operates a pyramid scheme that ultimately will be shut down by U.S. regulators. He bet more than $1 billion that the company’s stock price would fall but later reduced the position as the company’s shares soared this year.

Ackman and others have called on the Federal Trade Commission to investigate Herbalife. They contend that most Herbalife distributors lose money while a select few profit, based on commissions from others they recruit into the business.

Herbalife has denied those allegations, noting that most of its distributors join the company to receive discounts on nutrition and weight-loss products they personally consume. The company said its business model is legal and used by several other multi-level marketing companies.

Ackman declined to discuss the appeals court ruling.

In its 2011 ruling, the Belgian court said that Herbalife was a pyramid scheme, “whereby the consumer or a business stands to make money which is more likely the result of introducing new consumers or businesses into the scheme than from the sale or use of products.”

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