US prosecutors have criminally charged two former executives of Herbalife Nutrition Ltd’s Chinese unit with running a decade-long scheme to bribe Chinese government officials to win business and evade regulatory scrutiny, a person familiar with the matter said.
Herbalife was not criminally charged and the multilevel marketing company was not identified by name in Thursday’s indictment against Jerry Li (李延亮) and Mary Yang (楊紅薇).
Herbalife was their employer, the person said.
Li, the former head of Herbalife’s Chinese unit, and Yang, who led its external affairs department and reported to Li, were charged by the US Department of Justice with conspiring to contravene the Foreign Corrupt Practices Act by orchestrating the bribes and circumventing Herbalife’s accounting controls.
Prosecutors also charged Li with perjury for lying under oath when the US Securities and Exchange Commission questioned him about the alleged bribes, and for destroying evidence.
Both defendants remain at large.
The commission filed related civil charges against Li.
Lawyers for the defendants could not immediately be identified. Herbalife did not immediately respond to requests for comment.
The charges were announced six weeks after Herbalife agreed to pay US$20 million to settle civil charges that it misled investors from 2012 to last year about how its Chinese business operated, without admitting wrongdoing.
US Attorney for the Southern District of New York Geoffrey Berman said that Li and Yang approved “extensive and systematic payments of bribes” to Chinese government officials.
Authorities said the bribes included cash, entertainment, meals and travel, and Yang’s department reimbursed employees more than US$25 million for entertaining and gift-giving.
The bribes were intended to help Los Angeles-based Herbalife obtain direct selling licenses, reduce government scrutiny of its Chinese operations and suppress negative coverage by state-controlled media, authorities said.
By 2016, China accounted for 19 percent, or US$869 million, of Herbalife’s US$4.49 billion of net sales, up from 7 percent in 2006, regulatory filings showed.
The US$20 million agreement resolved charges that Herbalife told investors it paid distributors in China differently from those elsewhere, because the multilevel marketing it normally uses is illegal in that nation, when in fact the compensation methods were similar.
Pershing Square Capital Management chief executive Bill Ackman made a US$1 billion bet against Herbalife in 2012 and accused the company of being a pyramid scheme, which it denied.
The hedge fund manager later unwound his position as Herbalife’s share price kept rising.
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