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Did The FTC Ever Actually Say Herbalife Wasn't A Pyramid Scheme?

Did The FTC Ever Actually Say Herbalife Wasn't A Pyramid Scheme? - Herbalife LTD. NYSE:HLF

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.”

“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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