The Justice Department Thursday charged two former Herbalife executives with bribing Chinese officials for ten years and covering it up by lying to the SEC and destroying evidence.
Jerry Li, 51, a Chinese citizen, was the former head and managing director of Herbalife’s China subsidiary. The DOJ charged him with one count of conspiracy to violate the FCPA’s internal controls provisions, one count of perjury, and one count of destruction of records in federal investigations. His Chinese name is Yanliang Li.
Mary Yang, 51, also Chinese, formerly ran the external affairs department of Herbalife’s China subsidiary. She was charged with one count of conspiracy to violate the FCPA’s internal controls provisions. Her Chinese name is Hongwei Yang.
An indictment filed in New York City alleged that for ten years starting in 2007, Jerry Yang and co-conspirators bribed Chinese officials to obtain licenses for Herbalife. The company sells dietary supplements through multi-level marketing.
Other bribes were intended to stop Chinese government investigations into Herbalife’s operations in China and suppress negative coverage of the company by Chinese state-owned media outlets.
By 2016, Herbalife’s China sales topped $800 million, or 20 percent of the company’s worldwide sales, the DOJ said.
In the United States, Herbalife agreed in July 2016 to pay $200 million to settle FTC charges that it deceived customers about how much money they could make selling Herbalife products. The company also agreed to restructure its U.S. business operations.
In 2017, LA-based Herbalife disclosed that the SEC had requested documents and other information about the company’s anti-corruption compliance in China. That investigation, according to recent SEC filings, is still pending.
Herbalife said it discussed the SEC’s investigation with the DOJ and was cooperating.
Thursday’s criminal indictment said Li and Yang allegedly obtained reimbursement for bribes by submitting “false and fraudulent expense claims” that were intended to circumvent Herbalife’s internal accounting controls.
According to the indictment, during just six months in 2012, Mary Yang allegedly collected $772,000 in reimbursement “for purportedly entertaining 4,312 government officials at 239 meals, or more than one meal per day.”
Between 2007 and 2016, Herbalife’s external affairs department in China reimbursed its employees “more than $25 million for entertaining and gift giving to Chinese Government officials,” the DOJ said.
The FCPA requires issuers to devise and maintain a system of internal accounting controls. It also says, “No person shall knowingly circumvent or knowingly fail to implement a system of internal accounting controls or knowingly falsify any book, record, or account . . . ”
Jerry Li, who left Herbalife in 2017, gave sworn testimony to the SEC in New York City. The indictment said he made false statements, including each of the following answers:
Q: Do you have a personal e-mail account?
Q: Do you use any e-mail accounts other than your work e-mail?
Q: Have you offered any payment to any official at [the Chinese State Administration for Industry and Commerce]?
Q: Have you ever offered any payments to any official at [China’s Ministry of Commerce]?
Q: Are you aware of any such payments offered by anyone at [Herbalife’s China subsidiary]?
A: As far as I know, no.
Li also installed a “wiping application” on his company computer, the DOJ said. That allowed him “to erase 200 files from the laptop in a manner that would render the deleted files unrecoverable.”
The SEC also sued Li in federal court Thursday in a civil enforcement action.
The complaint alleges that Li bribed Chinese officials “through payments of cash, gifts, travel, meals and entertainment and . . . falsified company expense reports to conceal the bribes.”
The SEC wants him to pay a penalty for violating the FCPA and for aiding and abetting Herbalife’s violations of the securities laws. The amount of the possible penalty wasn’t specified.