Herbalife Denies Pyramid Scheme Allegations

Herbalife Denies Pyramid Scheme Allegations

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LOS ANGELES (FOX 11/CNS) - Herbalife has denied allegations in a lawsuit by a former salesmen who contends the nutritional supplement company is running an unlawful pyramid scheme, court papers obtained today showed.

In a 42-page answer to ex-Herbalife distributor Dana Bostick's complaint, the Los Angeles-based company also denies that class action certification is appropriate.

Bostick, a retired Los Angeles general contractor, alleges that Herbalife systematically pays bonuses to distributors based on their recruitment of new salespeople rather than sales.

In a recent ruling, U.S. District Judge Beverly Reid O'Connell denied Herbalife's motion to dismiss the case.

The judge wrote that Herbalife sales people "pay money for the right to sell Herbalife products" while "supervisors pay money to receive recruitment rewards which are unrelated to the sale of products to ultimate users."

If Bostick's assertions are proven, Herbalife could fall under the Federal Trade Commission's definition of an illegal pyramid scheme: one in which those at the top are paid with fees from those recruited at the bottom.

In its answer, filed Tuesday in Los Angeles federal court, Herbalife denies each of Bostick's allegations, even questioning whether the plaintiff is indeed a resident of California.

The company admits only that it is "a network marketing company and has a marketing plan through which individual independent distributors market, promote and sell Herbalife products," according to the filing.

Herbalife also agrees that it entered into a distribution agreement with Bostick in April 2012, but denies that he "accurately and completely summarized" the company's sales and marketing plan, or its policies and rules, in the lawsuit.

Bostick's attorney, Philip D. Dracht, said he was surprised at Herbalife's "seeming inability to admit the most basic facts about their marketing plan -- facts that have already been found by a prior court to be true."

Dracht said he and Herbalife were working out a schedule and expected O'Connell to set a series of court dates in the near future.

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