U.S. charges two former Herbalife executives in China over bribery scheme: source

NEW YORK (Reuters) - U.S. prosecutors criminally charged two former executives of Herbalife Nutrition Ltd's HLF.N 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.

FILE PHOTO: A Herbalife sign is shown on a building in Los Angeles, California, U.S. October 19,2018. REUTERS/Mike Blake

Herbalife was not criminally charged, and the multi-level marketing company was not identified by name in Thursday’s indictment against Yanliang Li, also known as Jerry Li, and Hongwei Yang, also known as Mary Yang. The person familiar said Herbalife was their employer.

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 U.S. Department of Justice with conspiring to violate 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 U.S. Securities and Exchange Commission questioned him about the alleged bribes, and for destroying evidence.

Both defendants are 51-year-old Chinese citizens and remain at large. The SEC 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 $20 million to settle SEC civil charges that it misled investors from 2012 to 2018 about how its Chinese business operated, without admitting wrongdoing.

U.S. Attorney Geoffrey Berman in Manhattan said Li and Yang approved “extensive and systematic payments of bribes” to Chinese government officials from roughly 2007 to 2017.

Authorities said the bribes included cash, entertainment, meals and travel, and Yang’s department reimbursed employees more than $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%, or $869 million, of Herbalife’s $4.49 billion of net sales, up from 7% in 2006, regulatory filings show.

The $20 million SEC accord resolved charges that Herbalife told investors it paid distributors in China differently from distributors elsewhere, because the multi-level marketing it normally uses is illegal in that country, when in fact the compensation methods were similar.

William Ackman, the hedge fund manager, made a $1 billion bet against Herbalife starting in 2012, and accused the company of being a pyramid scheme, which it denied. He later unwound his position as Herbalife’s stock price kept rising.

Herbalife shares were down 30 cents, or 0.7%, at $43.50.

The criminal case is U.S. v. Li et al, U.S. District Court, Southern District of New York, No. 19-cr-00760. The SEC case is SEC v. Li in the same court, No. 19-10562.

Reporting by Brendan Pierson and Jonathan Stempel in New York; Editing by Chris Reese and Lisa Shumaker