Top Defense Results: In re Herbalife Ltd. Securities Litigation

Securities fraud

Central District

U.S. District Judge Dale S. Fischer

Defense attorneys: Gibson, Dunn & Crutcher LLP, Jonathan C. Dickey, Alexander K. Mircheff

Plaintiffs' attorneys: Saxena White PA, Maya Saxena, Brandon Grzandziel, Lester R. Hooker; Tostrud Law Group PC, Jon A. Tostrud

As national media attention centered on claims by a prominent hedge fund that nutritional products maker Herbalife International was a pyramid scheme, investors sought to piggy-back on the resulting notoriety by filing a potential class action over allegations the company defrauded shareholders.

The complaint alleged that Herbalife makes money by recruiting distributors rather than by selling products and engages in deceptive trade practices by pressuring members to purchase more products to resell as distributors.

The complaint also claimed that Herbalife issued false and misleading financial statements.

Herbalife long fought off accusations by a billionaire hedge fund manager and activist investor, William Ackerman, that the company was a pyramid scheme.

That led investor Abdul Awad to file a shareholder suit in April 2014; an Oklahoma-based pension fund took over as lead plaintiff soon after.

Gibson, Dunn & Crutcher LLP's successful defense persuaded U.S. District Judge Dale S. Fischer of the Central District that misstatements supposedly revealed by the hedge fund were immaterial because Herbalife had made extensive warnings to investors that its multi-level marketing business model could potentially be challenged as a pyramid scheme.

Fischer, dismissing all securities fraud claims without leave to amend in November, rejected plaintiffs' arguments that Herbalife intended any damage to its shareholders. In re Herbalife Ltd. Securities Litigation, 14-CV-02850 (C.D. Cal., filed April 14, 2014).

Gibson Dunn lawyers noted that the case was filed while Herbalife was under attack on multiple fronts. "The case required us to explain why the company's business model was entirely legitimate and properly disclosed," the firm said in a statement.

- John Roemer