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Herbalife discloses potential $123 million settlement with DOJ and SEC over allegations of bribed in China

Herbalife Nutrition Ltd. said in its recent financial report Thursday that it has “reached an understanding” to pay up to a combined $123 million to settle regulatory investigations by the Securities and Exchange Commission and U.S. Justice Department. Those investigations were about Herbalife’s China business activities and “the adequacy of and compliance with the company’s internal controls.”The issues involve Herbalife’s compliance with the Foreign Corrupt Practices Act (FCPA) in China and its external affairs expenditures in the country from 2006 to 2016. The settlement still requires approval of Herbalife’s board of directors, and may need court approval of the Justice agreement.

The $123 million would go to pay for what Herbalife calls “aggregate penalties, disgorgement and prejudgment interest.The SEC settlement would involve entering into an administrative resolution “with respect to alleged violations of the books and records and internal controls provisions of the FCPA.”

The Justice settlement would involve a deferred prosecution agreement under which the department “would defer criminal prosecution of the company for a period of three years related to a conspiracy to violate the books and records provisions of the FCPA.”

Herbalife has agreed to compliance self-reporting obligations for the three-year term of the respective agreements.

If Herbalife remains in compliance with the Justice agreement, the deferred charge would be dismissed permanently.

Herbalife set aside $40 million in accrual during the fourth quarter toward a potential settlement. It set aside an additional $83 million in the first quarter.

If the settlement is not finalized, litigation could be required that could cost as much, if not more, than the $123 million in accrual.

Four years ago,  Herbalife agreed in July 2016 to pay a $200 million penalty and restructure its U.S. operations to settle what the Federal Trade Commission termed as “unfair and deceptive practices.”

 

 

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