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Herbalife hears familiar chorus: ex-workers allege 'pyramid scheme.'.

Article Excerpt
Herbalife Ltd. has gone far in fighting 'the old perception that it operates as a thinly veiled pyramid scheme. In recent years, it picked a high-profile Disney executive to be its chief executive, improved its diet and nutritional supplements, and changed the way it operates.

But it looks as if the L.A. company will have to fight again. A group of former top distributors in the midst of a nasty legal battle with Herbalife is renewing the claim that Herbalife operates as a pyramid scheme.

The allegation could be disregarded as a standard strategic countersuit--Herbalife earlier sued the group for allegedly poaching hundreds of its independent distributors to a competing business--except that the federal judge overseeing the case recently denied Herbalife's request to throw out the pyramid scheme claim, instead ruling it should go to trial.

In fact, U.S. District Court Judge Gary Feess indicated that he sees the pyramid charges as serious.

"Herbalife's entire business model appears to incentivize primarily the payment of compensation that is 'facially unrelated to the sale of the product to ultimate users ...' rather than based on actual sales to consumers," wrote Feess in his Aug. 25 ruling.

That's significant because under federal law, multilevel marketing companies such as Herbalife must have policies that ensure distributors are selling most of the products to ultimate users and not just moving them down line to lower-level distributors.

If the claim is upheld by a jury, Herbalife's own...