Herbalife Ltd. has come under attack from a New York state senator and public advocate, who called the company a pyramid scheme and proposed cracking down on its sales practices.
State Senator Jeff Klein, working with Public Advocate Letitia James and advocacy group Make the Road New York, said in a
report on Tuesday that they compiled
data on 56 victims, who filed complaints against Herbalife since 2004,
they lost an average of $20,000. The investigation also looked at 60 so-called nutrition clubs -- the groups that help sell Herbalife’s weight-loss shakes and supplements -- in the Bronx, Queens and Brooklyn. Klein and James plan to introduce a bill in the coming weeks that will impose stricter regulations on multilevel marketing firms like Herbalife, which rely on independent distributors.
Herbalife “needs to be held accountable,” according to the report. “For too long the company has masked an illegal pyramid scheme.”
Pershing Square
Herbalife’s foes also include billionaire hedge-fund manager Bill Ackman, who began calling the company an illegal pyramid scheme in 2012. Ackman’s firm, Pershing Square Capital Management, bet $1 billion against the stock at the time. It also has hired outside firms to investigate Herbalife.....
FTC Probe
Herbalife has repeatedly denied Ackman’s accusations, but the criticism has prompted a probe by the U.S. Federal Trade Commission.
“We look forward to working with anyone who is interested in making the industry stronger,” Herbalife said in an e-mailed statement. The company is reviewing the report......
More Transparency
Klein’s proposed bill would require multilevel marketing firms to be more transparent about how well the people who try its strategies perform. This would include average income and franchisee turnover.
One of Ackman’s main points is that Herbalife distributors are compensated more for recruiting people to the business, rather than selling products to consumers. That’s seen as a hallmark of pyramid schemes. Herbalife has countered this argument by saying it doesn’t record who is the end user because it only sells to distributors. It has also pointed to third-party surveys that show its products have about 8 million customers in the U.S.
Klein and his partners said their investigation found Herbalife distributors hyped the health claims of the company’s products.....
Companies like Herbalife “set up rules and regulations to avoid being categorized as running illegal pyramid schemes as defined by the FTC, but in reality the rules are not enforced,” according to the report. “Instead, the company turns a blind eye to the illegal pyramid scheme it promotes.”