Herbalife Ltd agreed to pay $200 million and change the way it does business to avoid being labelled a pyramid scheme by regulators, a blow to hedge fund manager Bill Ackman who for years has been betting against the dietary supplements maker.
After the settlement was made public, the Los Angeles-based company said its board had cleared the way for billionaire investor Carl Icahn to boost his stake in the company to as much as 35% from his current 18.3%
Herbalife uses a massive network of independent distributors to sell powdered shakes, vitamins and other tablets designed to help people manage their weight, boost energy and calm stress.
The sales method, under which some people get more money for recruiting new distributors than selling products, has attracted criticism.
The company became a battleground for Icahn and Ackman, two of the most outspoken US invertors, Who became embroiled in a public war of words over their opposing bets.
Icahn famously called hedge fund manager Ackman a "liar" and a "crybaby" in a CNBC interview in 2013. They have sine made up.
The US Federal Trade Commission opened a probe into Herbalife in 2014 following allegations by Ackman that the company was effectively a fraudulent pyramid scheme.
The FTC said Friday's settlement represented a fundamental change in how the company operates, as it will require rewards to distributors to be based on retail sales rather than recruiting new distributors.
The FTC pointed out that the overwhelming majority of Herbalife's distributors earn little or no money. It remains to be seen how well they will fare under the new arrangement.
Herbalife said that it disagreed with the FTC's criticism but opted to settle with the agency and with the state of lllinois -which had also started an investigation -to avoid litigation.