Herbalife overstated member growth, cites database errors
Herbalife, the seller of supplements and weight-loss products currently under federal investigation as a potential pyramid scheme, overstated its worldwide membership growth in 2015.
The company said active new members worldwide grew 3.4 per cent instead of 8.3 per cent in 2015. Revised figures for the fourth quarter cut worldwide growth to 3.2 per cent from 16.7 per cent.
The Los Angeles-based company cited a database error as the cause, saying "it had limited visibility into the likely rate of change" in the metric plan, which it began using last year.
The company has been under pressure from activist investor Bill Ackman and his Pershing Square Capital Management LP for its business practices. He has claimed that the company is running a pyramid scheme, which involves making money by recruiting more salespeople instead of through selling products. Such models are illegal because they eventually collapse once there are no more people to recruit.
Herbalife has defended its business practices, saying it is confident in the fundamentals of its business model, which it has said operates like a multi-level marketing company similar to Avon, Amway and Mary Kay.
In February, the company disclosed that it is in talks with the Federal Trade Commission to potentially resolve the investigation surrounding its business practices.
Shares of Herbalife fell US$3.86, or 6.9 per cent, to US$52.54 in afternoon trading on Thursday. Its shares are up more than 68 per cent over the past year.