Herbalife agreed to pay $123 million in civil and criminal penalties as part of a settlement with the US Department of Justice related to charges that the nutrition company bribed Chinese officials in government agencies and media outlets to advance its business in China.
Herbalife (HLF) entered into a deferred prosecution agreement charging the company with one count of conspiracy to violate the books and records provision of the Foreign Corrupt Practices Act (FCPA), an anti-bribery law. The criminal penalty amounts to over $55 million and approximately $67 million will be be paid to the US Securities and Exchange Commission (SEC) to resolve a related civil case.
“By engaging in a decade-long scheme to falsify its books and records to conceal corrupt and other improper payments to Chinese officials and state-owned entities, Herbalife misrepresented important information made available to investors,” said Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division. “As admitted in the deferred prosecution agreement, Herbalife approved the extensive and systematic corrupt payments to Chinese government officials over a 10-year period to promote and expand Herbalife’s business in China.”
Between 2007 and 2016, Herbalife knowingly and willfully conspired with others in a “scheme to falsify its books and records and provide corrupt payments and benefits” such as travel and entertainment expenses to Chinese government officials, according to the US government’s statement.
As part of the agreement, Herbalife agreed to continue to cooperate with the US government in any ongoing or future criminal investigations concerning Herbalife, its executives, employees, or agents. In addition, under the agreement, Herbalife will enhance its compliance program.
Shares in Herbalife have recovered after hitting a low in March and are now trading almost 4% higher than at the start of the year, as the company has been benefiting from the recent trend in consumer preferences for a healthy lifestyle during the coronavirus pandemic. What’s more, the $62.25 average analyst price target implies 26% upside potential in the shares over the coming 12 months.
Argus Research analyst John Staszak last month raised HLF to Buy from Hold with a $54 price target, citing “increased interest in overall health and fitness, rather than in weight-loss products only”.
Staszak pointed out that Herbalife’s product offerings take advantage of this trend, and the company’s distributors have used remote marketing through Zoom and other online tools to reach customers during the pandemic.
The rest of the Street is in line with Staszak as the stock scores 5 unanimous Buy ratings adding up to a Strong Buy analyst consensus. (See Herbalife stock analysis on TipRanks)
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