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Herbalife protein bars at Herbalife's corporate office in Los Angeles.Damian Dovarganes/The Canadian Press

The U.S. Securities and Exchange Commission (SEC) said on Friday that Herbalife Nutrition Ltd. has agreed to pay $20-million to settle charges that it made false and misleading statements about its business operations in China.

The weight-management and nutrition company did not admit or deny the agency charges, but agreed to cease and desist from further antifraud violations, according to the SEC.

Herbalife did not immediately reply to requests for comment.

Herbalife employs ‘multi-level marketing’, whereby direct sales companies encourage their workforce to recruit new sellers by awarding them a percentage of the sales.

The SEC found that between 2012 and 2018 Herbalife falsely disclosed to investors that, since direct selling was permitted in China but multi-level marketing was prohibited, it had adopted a different compensation model for business in that country. In reality, its business operations and how it paid service providers in China were similar to its worldwide operations, the SEC said.

While Herbalife claimed it paid Chinese providers on an hourly basis, the SEC said those workers did not record their own hours or detail their work, and instead relied on pre-printed forms that assigned a certain number of hours to specific services.

The markets regulator is seeking to stamp out what it regards as inaccurate disclosures from U.S. companies on their global operations.

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

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