Legal Setback For Herbalife Ltd. (NYSE:HLF)
In what is being described as a big set back to the Cayman Island based personal products manufacturing company Herbalife Ltd. (NYSE:HLF) a U.S. District court has turned down Herbalife Ltd petition to dismiss a lawsuit brought against it by Dana Bostick. Ms Bostcik has been waging a “class alleging violation” against the personal products maker. In the law suit Herbalife Ltd has been accused of breaking California’s “Endless Chain Scheme Law”.
In his order dismissing Herbalife Ltd plea to dismiss the Judge has ruled that, “The considerable discounts and advantages offered to supervisors presents the same risk of recruitment focus present in Omnitrition.” The ruling goes on to discredit Herbalife Ltd contention that “downline distributors” are ultimate users. The judge contends that enough evidence has been presented for him to determine that supervisors have been paying money to make themselves eligible for recruitment awards which are ultimately unaligned with sale of products to end customers.
While October 14 ruling is just a denial of HLF request to dismiss the court case brought against it, interesting legal and ethical points have been raised by the plaintiff and the judge to make investors of HLF uneasy.
In an unrelated development, one of Herbalife Ltd directors Jeff Dunn has gone on record to state that findings from the independent audits being conducted by PricewaterhouseCoopers LP into the company company’s books will give a clean bill of health to the company operations and account keeping. Mr Dunn was compelled to respond in order to clear the air about persistent allegations from fund managers and analyst firms that HLF business model was a glorified pyramid scheme.
PricewaterhouseCoopers had to take a find teeth comb and go over statements from 2010 in order to clear the air after the previous accounting firm KPMG LLP had to exit due to one of its auditor being accused of insider trading.