• by Thom Forbes  @tforbes, July 18, 2016

The nearly four-year battle between activist investor William Ackman and nutrition supplements company Herbalife came to a climax Friday when the Federal Trade Commission announced a $200 million settlement with the company, which also agreed to “fundamentally restructure” its compensation program so that “participants are rewarded for what they sell, not how many people they recruit.” 

“But federal officials stopped short of calling the company a pyramid scheme and allowed it to keep operating,” NPR’s Jim Zarroli reports, although the FTC “had extremely tough words for Herbalife and made clear it sees many of its practices as deceptive.” 

“Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices,” FTC chairwoman Edith Ramirez stated in a release announcing the settlement. She also spoke at a Webcast press conference archived here.

In the “Wall Street dogfight between two billionaire investors” — Ackman and Carl Icahn — Ackman “won a moral victory but Icahn won the war” in that the FTC “stopped short of shutting down the company,” Matthew Goldstein and Alexandra Stevenson posit for the New York Times. “Mr. Ackman had wagered big on Herbalife’s demise, while Mr. Icahn had been betting on its ultimate survival.”

Indeed, “From its tone and contents, today's complaint could almost have been written by the authors of Ackman's multi-hour presentations about Herbalife, or the curators of his anti-Herbalife Web site. The FTC seems to agree with Ackman on essentially everything except his final conclusion — that regulators should shut down Herbalife,” writes Matthew Goldstein for BloombergView.

And so, rather than plummeting to $0 as Ackman has been looking for, the Los Angeles-based company’s shares on Friday were trading at about $65 — a 10% gain after the news hit, Goldstein and Stevenson point out. 

“Despite the huge losses he has sustained on the bet against Herbalife, Ackman remained steadfast Friday after the ruling. He said the commission ruling puts intense pressure on the company to reform its practices, in particular a provision that distributors are only compensated for ‘profitable retail sales’ and not for recruiting or buying products,” CNBC’s Jeff Cox reports.

“We expect that once Herbalife's business restructuring is fully implemented, these fundamental structural changes will cause the pyramid to collapse as top distributors and others take their downlines elsewhere or otherwise quit the business,” Ackman stated in a release posted to his Pershing Square Capital Web site. 

Fortune’s Jen Wieczner estimates that Pershing Square would lose about $364 million if it were to buy back today all the shares its has borrowed in its short position (and that does not include the multimillions that Ackman has spent in researching the company, creating marketing campaigns against it and maintaining the positions, which takes the tally to an estimated $500 million).

The winners were Icahn — to the tune of about $457 million — and the FTC, Wieczner writes, as well as similar multi-level marketing companies that must be “breathing a sigh of relief today as Herbalife escaped the FTC labeling it a ‘pyramid scheme’ and got off without paying a terribly painful penalty.”

For its part, Herbalife said it disagreed with the FTC but would carry on “stronger than ever.” Chairman and CEO Michael Johnson said in a statement, “The FTC settlement is an acknowledgment that our business model is sound and underscores our confidence in our ability to move forward successfully, otherwise we would not have agreed to the terms.” 

Icahn, who holds 18% of the company and controls five board representatives, “announced that the company’s board raised his ownership limit to 35% from 25%. That could allow him to take a more active role in steering the company’s strategy,” reportBloomberg’s Beth Jinks, Matthew Townsend and David McLaughlin. 

“The settlement requires Herbalife to reward actual retail sales instead of the recruitment of distributors. The settlement also will require Herbalife to verify, through receipts and other methods, that its product sales are legitimate,” David Benoit and Brent Kendall report for the Wall Street Journal.

“This will force the company to prove it has underlying users who use its products. The settlement also bars Herbalife from misrepresenting distributors’ potential earnings and prohibits the company from claiming that Herbalife members will be able to quit their regular jobs or live lavish lifestyles,” they continue.

Herbalife’s adherence to the terms, including additional strictures on its business practices outlined in the news release, must be monitored by an Independent Compliance Auditor for seven years. 

We’re going to short the likelihood that this story is over.