Herbalife Ltd. (NYSE: HLF) shares soared 12
percent on Friday after the company reached a $200 million settlement with the Federal Trade Commission related to deceiving
customers. Clearly the market is interpreting the settlement as good news, but traders and the media may be making some premature
assumptions.
A number of media outlets, such as CNBC, are reporting the FTC
ruled Herbalife is not a pyramid scheme. In reality, the word “pyramid” doesn't appear anywhere in the FTC’s official press
release.
In fact, in a press conference this morning, a FTC spokesman
said Herbalife was “not determined not to be a pyramid.”
Related Link: What Does Carl Icahn Think Of
Herbalife's FTC Settlement?
“Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are
likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair
and deceptive practices,” FTC Chairwoman Edith Ramirez said in a press
release, carefully avoiding the phrase “pyramid scheme.”
The FTC is also requiring Herbalife to “fully restructure their U.S. business operations.”
Now that the FTC decision is out of the way, Herbalife and its investors can focus on the SEC investigation that was reportedly
still ongoing as of late
April.
Disclosure: the author holds no position in the stocks mentioned.
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