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Herbalife soars after dodging pyramid scheme tag in FTC settlement

The Federal Trade Commission settled with Herbalife on Friday, effectively determining that the nutritional supplement marketer is not a pyramid scheme.

Separately, the company said Carl Icahn and his interests have retained the right to boost their ownership stake of Herbalife to 34.99 percent, up from a previous maximum of 25 percent. Icahn currently owns 17 million common shares, or about 18 percent of Herbalife's outstanding common shares.

The FTC skirted the phrase "pyramid scheme" or "Ponzi" in its pronouncement, but by calling for changes to Herbalife's operations, rather than shutting the company down altogether, critics' main charges against Herbalife were largely quashed. However, the FTC did warn Herbalife that it will need to prove that its business model is legitimate going forward.

Investors cheered the news, sending shares up 15 percent in morning trading. (Get the latest quote here.)

Noting that he believes in the company's "strong fundamentals," Icahn said, "I have the greatest confidence in Herbalife's CEO, Michael Johnson, and the entire management team, who have skillfully led the Company through adversity, including holding firm against a high-profile PR campaign against the Company by Bill Ackman where it was alleged more than once that the Company would be shut down. Obviously, we are still here."

On Thursday, Ackman told CNBC he's still betting against Herbalife, and argued that the company needs to makes "material changes to its incentive structure."

The hedge fund manager has long called Herbalife a pyramid scheme.

Ackman took a short position on the company more than three years ago. In May, he told CNBC that his bet against the company is roughly $1 billion. He also advised Herbalife employees to leave the company because it's "not going to be a good thing on your resume" and to "go find another job."

On Friday, after the FTC settlement came out, Icahn said, "While Bill Ackman and I are on friendly terms, we have agreed to disagree (vehemently) on this subject. Simply stated the shorts have been completely wrong on Herbalife." Now that the settlement is done, Icahn said Herbalife will consider "a range of strategic opportunities, including potential roll-ups involving competitors, as well as other strategic transactions."

Under the settlement with regulators, Herbalife will pay $200 million over claims of misrepresentation. That payment stems from claims of misrepresentation, according to Dow Jones, which reported news of the settlement earlier. Herbalife also agreed to change some of its business practices and will have to prove its retail sales numbers are accurate.

Product distributors will now be paid based on actual retail sales rather just buying the product for their own personal consumption, according to the company statement. Distributors will need to provide actual receipts of retail sales in order to be paid. Herbalife will rely on a mobile app to help track sales and distribution more closely.

CNBC's Christine Wang contributed to this report.