Herbalife Chinese execs indicted, also sued by SEC
Two Herbalife executives based out of China were indicted back in 2019.
One of the executives, who fronted HerbaLife China for over a decade, was also sued for by the SEC.
Both the criminal charges and civil case pertained to Herbalife’s violations of the Foreign Corrupt Practices Act.
Yanliang Li (aka Jerry Li, right), was Managing Director of Herbalife for China since 2007. His accomplice, Hongwei Wang, aka Mary Yang, was Herbalife’s Head of External Affairs.
BehindMLM previously covered Herbalife’s shenanigans in China back in 2019. The company got off with a $122 million fine, with the DOJ opting to defer prosecution.
If you’re unfamiliar with the case, here’s a summary from the DOJ;
Herbalife Nutrition Ltd. (Herbalife), a U.S.-based publicly traded global nutrition company, has agreed to pay total penalties of more than $122 million to resolve the government’s investigation into violations of the Foreign Corrupt Practices Act (FCPA).
The resolution arises out of Herbalife’s scheme to falsify books and records and provide corrupt payments and benefits to Chinese government officials for the purpose of obtaining, retaining, and increasing Herbalife’s business in China.
What I didn’t know at the time was, separately, Li and Wang had been indicted and sued by the SEC.
Li’s and Wang’s indictment was filed under seal on October 22nd, 2019.
The indictment was unsealed on November 14th. There are no further substantial updates to the criminal case docket.
Li and Wang are Chinese citizens and reside in China. To the best of my knowledge they remain wanted by US authorities.
The SEC’s civil case against Li was filed on November 14th, 2019.
From 2006 to 2016, Li orchestrated a bribery scheme in China, bribing local, provincial, and national government officials to obtain direct selling licenses and curtail government investigations of (Herbalife’s) China Subsidiary’s business practices.
As (Herbalife’s) China Subsidiary’s Director of Sales in 2006 and 2007, and as its Managing Director from December 2007 until 2016, Li directed a scheme to:
(i) bribe officials through payments of cash, gifts, travel, meals, and entertainment;
(ii) falsify expense reports for those payments; and
(iii) circumvent (Herbalife’s) internal accounting controls to conceal the bribes.
Li bribed Chinese Government Officials to obtain licenses and stop government investigations.
In late 2006, (Herbalife’s) China Subsidiary submitted an application to the Chinese government for its first direct selling license in China.
To facilitate application approval, (Herbalife’s) China Subsidiary paid bribes to government officials employed by the China Ministry of Commerce (the agency responsible for awarding direct selling licenses in China), and to local offices of the China State Administration for Industry and Commerce (another government agency that participated in the licensing process).
Li and (Wang) directed the payment of those bribes.
For example, in a January 10, 2007 recorded telephone call, Li asked (Wang) whether (Herbalife’s) China Subsidiary had “taken care of” an official at the Ministry of Commerce (“Official 1”).
Li then asked, “We have given the money to [Official 1], haven’t we?” to which (Wang) replied, “Of course we have.” Li stated, “The money works well on him.”
Li also directed the payment of bribes to Chinese government officials to stop government investigations of (Herbalife’s) China Subsidiary, and to prevent or reduce fines issued to (Herbalife’s) China Subsidiary by the Chinese government.
For example, in a March 15, 2007 recorded telephone call, Li and (Wang) discussed such payments to officials in Jilin Province.
Li told (Wang) that Li had paid 35,000 yuan (approximately $4,500) to officials in Jilin “to build the connection… I was thinking it is better to spend money beforehand than spending money afterwards.
This money is a small sum after all, and if we were to be penalized, the figure will be much greater.”
In a December 5, 2007 recorded telephone call, Li and (Wang) discussed payments made by China Employee 2 to officials in Zhejiang province to stop several government investigations of China Subsidiary.
Li told (Wang) that Li had told China Employee 2 “to handle those needed to be done immediately.
After (Herbalife’s) China Subsidiary obtained its first direct selling license from the Chinese government, Li continued to bribe government officials to secure additional licenses.
For example, in a September 8, 2009 recorded telephone call, Li spoke with an official from the State Administration for Industry and Commerce in Shaanxi Province (“Official 2”).
Official 2 told Li that there may be “some trouble” in Beijing, and that China Subsidiary may have to pay a fine.
Official 2 told Li that he did not “want to discuss too much with you over the phone,” but that he was interested in becoming a “consultant” to China Subsidiary, and that this money would help pay for his “son’s house purchasing fund.”
Official 2 also told Li that China Subsidiary’s licensing process in Shaanxi Province was almost complete, and Li thanked him: “You have certainly helped us to get this done.”
Official 2 told Li that he will go to “Beijing to visit the leadership, because not only for taking care of this matter, it is the relationship for life.”
Li also bribed government officials at state-owned media outlets in China to prevent negative media coverage of (Herbalife’s) China Subsidiary.
For example, in January 2013, a state owned media outlet (“Media Outlet 1”) published a negative article about (Herbalife’s) China Subsidiary.
In an April 22, 2013 recorded telephone call, Wang told Li that she had met with the President of Media Outlet 1 (“Media Official 1”) and asked him to remove the negative article.
(Wang) told Li: “He already took what he should take, ate what he should eat, drank what he should drink, and used what he should use. It’s up to him.”
Li responded: “It is time for him to get to work, right?”
Wang told Li that she told Media Official 1 that “if you destroyed us, where could you get money?” to which Media Official 1 laughed and agreed to remove the negative articles.
Li praised Wang: “You have done a great job!”
In 2013, another state-owned media outlet (“Media Outlet 2”) published several negative articles about China Subsidiary.
In an August 28, 2013 recorded telephone call, China Employee 3 told Li that he had met with the Chief Editor of Media Outlet 2, who “had agreed that they would stop after publishing two articles and we would start to negotiate collaboration.”
China Employee 3 told Li that when the Chief Editor of Media Outlet 2 escorted him out, China Employee 3 “put our ‘goodwill’ on the desk. He pretended he did not see it. This should not be a problem.”
Li told China Employee 3 that they should ask Media Outlet 2 to publish positive articles before negotiating “collaboration.”
Bribes to Chinese officials were initially recorded as “red envelope” payments on Herbalife’s books. After Wang alerted Li to this, accounting statements were rewritten to “conceal the payments”.
For their part, Herbalife maintain they were mislead by their Chinese subsidiary.
Li falsely assured Herbalife’s Internal Affairs Department (IA) that the abnormally high EA expenses were legitimate and necessary to conduct business in China.
Li acknowledged the compliance problems identified in the reports, such as the use of fake receipts, and falsely assured IA that he would discipline and train employees to improve compliance of China Subsidiary’s policies.
Li is also alleged to have lied to the SEC;
On October 20-21, 2016, in testimony before the Commission staff – and in the presence of the (Herbalife) officer responsible for its FCPA compliance (and other Herbalife representatives) – Li denied knowledge of any payments to Chinese government officials on behalf of (Herbalife’s) China Subsidiary.
The SEC managed to execute service on Li, in China through the Hague Convention, on December 24th, 2020.
Li failed to file a response to the SEC’s complaint, prompting the regulator to file for default judgment in September 2021.
On June 27th, the SEC secured default judgment against Li.
The court issued an injunction prohibiting Li from committing further violations. He was also ordered to pay a $550,092 civil penalty.
Amid ongoing regulatory investigations, Li abruptly quit Herbalife and disappeared in 2017. I believe Wang either quit or was terminated around the same time.