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The Securities and Exchange Commission today announced that Herbalife Nutrition Ltd.—a direct selling company with operations in over 90 countries— has agreed to pay $20 million to settle charges that it made false and misleading statements about its China business model in numerous U.S. regulatory filings over a six-year period.

According to the SEC’s order, in quarterly and annual SEC filings between 2012 and 2018, Herbalife told investors that while direct selling is permitted in China, multi-level marketing is not, and that as a result, Herbalife’s business model in China differed from that used in other countries. Herbalife’s representations were untrue because it employed a very similar compensation model in China to the one it employed in every other country. Herbalife purported to pay its service providers based on hours worked. However, to calculate service providers’ eligible compensation, Herbalife first calculated individual compensation using its worldwide system, which is based on downline purchases. Herbalife then made certain immaterial adjustments, and ultimately paid the service providers compensation in amounts almost the same as the amounts calculated using the worldwide system. Service providers did not themselves list their hours or describe the services they purportedly performed on a form they attached to their invoices. Rather, the service provider forms were pre-printed by Herbalife’s business in China with the number of hours for various, specific services on the forms sent to the service providers for their signature. The order finds that Herbalife’s public statements concerning service provider compensation were false and misleading and deprived investors of the information they needed to fully evaluate the risk of investing in Herbalife stock.

“Herbalife deprived investors of valuable information necessary to evaluate risk and make informed investment decisions,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “When making disclosures to investors, issuers must ensure that those disclosures are accurate.”

Without admitting or denying the SEC’s findings, Herbalife consented to the SEC’s order finding that it violated certain antifraud and reporting provisions of the federal securities laws. The SEC’s order requires Herbalife to cease and desist from further violations of the charged provisions and to pay a $20 million penalty.

The SEC’s continuing investigation is being conducted by Liora Sukhatme, Jack Kaufman, Christopher Mele, and Gerald A. Gross of the New York Regional Office and is being supervised by Sanjay Wadhwa.