Herbalife claimed to have had misstated an important member growth metric 28 times over three earnings calls since last year.
Due to a flaw within its database scripting, a number of active new members’ data was misreported – a new metric that it first mentioned on a call with analysts and investors in August.
INSIGHT: Herbalife was founded in year 1980 and was meant to sell protein shakes, snacks and rest of the weight-reducing products alongside dietary and nutritional supplements via the help of global network of independent distributors.
As per reports, there has always been an ongoing battle between Herbalife and billionaire investor William Ackman. The reason behind the dispute was billionaire’s stating of it as pyramid scheme. This lead Herbalife to deny the accusations and accuse Mr. Ackman and his hedge fund for trying to manipulate Herbalife’s stock.
Hence, metrics related to membership growth were in close evaluation as it generates much of its sales from members, either directly or when they act as independent distributors to consumers.
The metric was misstated on calls in August and November 2015 and last month. Herbalife said the misstated metric wasn’t included on any periodic reports filed with the Securities and Exchange Commission, and that the errors had no impact on its financial statements.The company apologized in saying that it hadunderstood and overstated the metric’s growth due to the inaccuracy.
Apart from this, last month the company proclaimed to be having world-wide active new members – excluding China – with a bullish estimate of 16.7% in 4Q. However, this time company made amendment stating an increase of 3.2%.