Thread: Herbalife News Stories

"China’s State Administration for Industry & Commerce is drafting rules that would regulate sales-force training, monitor marketing meetings and tighten application procedures when direct sellers seek to enter new regions in China and offer new products, said the people, who asked not to be identified as the matter isn’t public.

Tighter restrictions stand to affect the China operations of direct-selling companies including Amway Corp., Herbalife Ltd. (HLF) and Mary Kay Inc. The probe into Nu Skin led the company to promise a review of operations in China, where it got more than half its revenue in the three months ended in September, and postpone its full earnings release."

China Said to Plan Tighter Direct-Sales Rules Amid Nu Skin - Bloomberg

I wondered when Herbalife was going to be connected with NuSkin as basically they seem to be the same kind of MLM/pyramid schemes. I would be out of my element to comment on Mary Kay and Amway as to me they are in same category along with Avon but that is in my humble opinion only.

"By Svea Herbst-Bayliss

(Reuters) - Nutrition and weight loss products company Herbalife Ltd (HLF.N) lowered its forecast range for 2014 sales and again defended itself on Wednesday against allegations by billionaire investor William Ackman that its business is a fraud.

Herbalife, embroiled in a dispute with Ackman who over the past 14 months has accused the company of being a pyramid scheme, discussed earnings projections and its response to a U.S. lawmaker's inquiry into its business with analysts on a quarterly call.

Sales are expected to grow between 7.5 percent and 9.5 percent this year, in part because of strong business in China. Those numbers are lower than the company had forecast in October, when it reported third quarter results, and said 2014 sales would grow between 9 percent and 11 percent.

Investors said that may have added to pressure on Herbalife's stock price, which closed down nearly 4 percent on Wednesday at $66.18 per share.

Overall the outlook remained robust, however, with the company raising its earnings forecasts for the year to $5.85 to $6.05 a share, from $5.45 to $5.65.

On the call, Herbalife chief executive Michael Johnson described Ackman's short bet against Herbalife as "a reckless bet placed by a Wall Street gambler." Ackman first accused Herbalife publicly of running a pyramid scheme in December 2012. A pyramid scheme is an unsustainable business that typically makes most of its money by recruiting distributors rather than selling products to real customers.

The company says it operates a legitimate multi level marketing business and Johnson struck back both at Ackman on the call and in a letter to Senator Edward Markey, a Massachusetts Democrat with an interest in consumer protection. Markey started asking questions about the business in January.

Ackman has lost hundreds of millions on his $1.16 billion bet against Herbalife as the company's stock price has climbed 67 percent in the last 12 months.

Executives on the call told analysts that the company was obeying all regulations in its business in China, and met with Markey's staff late last month.

In the letter to Markey, dated February 18, Johnson said the company's compensation is driven by product sales, not recruitment. A copy of the letter was seen by Reuters.

Johnson also wrote that he wants to "assure (Markey) in the strongest possible terms, as we assured your staff, that Herbalife does not 'target' members of minority or low income-communities."

Civil rights groups have said the company preys on minorities with seductive advertising and promises to get rich by selling Herbalife products.

Executives told analysts on the call that Herbalife was poised to gain from a global obesity epidemic by offering products designed for weight loss. They said the bulk of customers buy the product for their own use and only a small number try to make a business out of selling products to others.

In the letter, Johnson said Herbalife wants its members to live a "healthier lifestyle" and give them a choice to "take advantage of the business opportunity that a multilevel marketing business model, like Amway, Avon or Tupperware, can offer."

When Markey made his questions public, the company's stock price dropped 15 percent. Markey set a deadline of February 28 for the company to respond to his questions.

News last month that Chinese officials were probing allegations that NuSkin (NUS.N) another multi-level-marketing firm, has been exaggerating its influence and creditworthiness in brochures, had weighed on Herbalife shares earlier this year."

Source:
Herbalife lowers forecast range for 2014 sales | Reuters

The Scribd embed code didn't work, so here's a link to the letter:

Hlf Letter (1)

From this story:

"Herbalife Sends Letter To Markey With Some Questionable Claims
- by Jacob Wolinsky

Herbalife Ltd. (NYSE:HLF) sent a letter to Senator Markey, a copy of which has been obtained by ValueWalk. The company claims that it does not target low income populations or minorities; however, this appears to directly contradict some other public statements by the MLM. Below are some comments from the letter contrasted with excerpts from earlier HLF comments. At the bottom is the full letter from Herbalife."

Full story with rebuttals to the HLF claim about not targeting low income populations or minorities:

Herbalife Sends Letter To Markey With Some Questionable Claims

"Herbalife executives head to DC to explain business model


(Reuters) - Herbalife executives will meet with U.S. lawmakers' staffs in Washington on Friday to explain the business model of the nutrition company that has been fending off accusations by billionaire investor William Ackman that it is running a pyramid scheme.

Herbalife Chief Financial Officer John DeSimone and other company representatives will host a session where Congressional staff members can ask questions about how the company's direct selling business works, according to an invitation sent by the lobbying firm Raben Group and seen by Reuters.

An Herbalife spokesman confirmed the planned meeting and said: "We look forward to educating Congressional staffers about the important economic impact of the direct selling industry and our company, and answering their questions."

The meeting suggests that Herbalife is stepping up its lobbying efforts in Washington at the same time as Ackman is stepping up his campaign against the company.

For more than a year, Ackman has been betting that Herbalife's share price will collapse amid regulatory scrutiny, but so far his $1.16 billion short position has left him with paper losses as the stock price has climbed.

Ackman's rivals, including Carl Icahn, have lined up against his short bet by taking stakes in Herbalife.

Last month Senator Edward Markey, a Massachusetts Democrat, waded into the battle by requesting details from Herbalife about its business model, how members earn compensation, and whether it targets minorities as civil rights groups have alleged.

Boston City Councilor Tito Jackson and Massachusetts state Senator Sal DiDomenico have also called for an investigation into the company, as have lawmakers from California, New Mexico, Nevada and New York.

U.S. regulators have declined comment on whether they are conducting investigations into Herbalife. Herbalife has repeatedly denied running a pyramid scheme, a model in which participants are paid solely to recruit more members into the scheme.

On its quarterly earnings call this week, Herbalife said it has answered all of Markey's questions. The company sent a letter dated February 18 in which it denied accusations it is running a pyramid scheme.

Markey's spokeswoman, Giselle Barry, said he is reviewing the answers and waiting for responses from the Securities and Exchange Commission and the Federal Trade Commission, whom he asked to probe the company.

Herbalife's Johnson has said that the bulk of Herbalife distributors join up to get discounts on products they use themselves and that only 4 percent of them want to turn selling Herbalife products into a full-time job.

Ackman has countered that claim, saying the company's videos suggest that anyone can get rich quickly by selling Herbalife products and they prompt many to spend thousands of dollars trying to build a business that often fails.

Ackman told his investors at a dinner last week that his $12 billion Pershing Square Capital Management began putting on its short position against Herbalife on May 1, 2012 and that the stock has appreciated by 23 percent since then, according to a presentation seen by Reuters.

(Reporting by Svea Herbst-Bayliss; Editing by Richard Valdmanis and David Gregorio)"

From:
Herbalife executives head to DC to explain business model | Reuters

Yeah, they should sell all congressmen Herbalife membership kits and sign them up, that will be perfect demonstration how it works :)

Bold and underlining mine.

Activist hedge fund manager Bill Ackman continued his relentless attack on Herbalife, releasing a report that accuses millionaire Herbalife distributor John Tartol of misleading others into selling the company's nutrition products.

Ackman's company, Pershing Square Capital Management, said in the report released on its website Thursday that Tartol has made millions of dollars by misleading people into believing they can get rich as independent Herbalife distributors.

“What took us that many years to do — 25, 30-plus years — you can all do in the next six, seven, eight years,” Tartol said at a 2011 Herbalife convention in Las Vegas, according to Ackman's report. “This is why everybody here is fired up. Because we know it.”

Tartol, a member of Herbalife’s board since 2005, said Ackman's allegations are unfounded.

“As an Herbalife independent distributor for nearly 33 years, I am very proud of the success I've achieved and helped many, many others achieve,” he said in a statement released by Herbalife.

“Together we offer healthy nutrition and an opportunity to earn supplemental income. And yes, for the small percentage of Herbalife distributors who choose to work hard and build a business, there is an opportunity for significant financial success,” he said.

Tartol, a Malibu resident, is the highest-profile Herbalife distributor to be attacked by Ackman.

The vast majority of people who join Herbalife's network of distributors end up losing money, while fewer than 1% make a six-figure income, the Pershing Square report said.

The Los Angeles company sells nutrition and health products through independent salespeople in more than 80 countries. Its products are not available in stores.

In December 2012, Ackman accused Herbalife of operating a pyramid scheme and announced he had bet more than $1 billion on Wall Street that the value of the company's stock would fall.

The stock nose-dived on the news, but recovered last year, gaining more than 100% when regulators failed to act. Ackman trimmed his short position, a Wall Street play that pays when a stock’s price falls.

Nevertheless, Ackman has increased his pressure on the company in recent weeks, releasing detailed attacks on successful Herbalife distributors.

Herbalife has defended its business model, saying the vast majority of people who sign up as distributors do so to get discounts on nutrition products they personally consume, not to get rich.

Company spokeswoman Barb Henderson said Ackman's latest attack is meritless.

“Having failed last year to make a return on his reckless $1-billion bet by attacking our business model, Ackman is now launching desperate attacks on individuals,” she said.

Herbalife shares rose 76 cents Thursday, or 1%, to $66.94.

Ackman accuses Herbalife director of misleading recruits - latimes.com

"Herbalife recently donated money to five of the seven Hispanic groups that signed a letter last week supporting the company, The Post has learned.

The donations were not disclosed and were only admitted by Herbalife after a reporter contacted three of the groups on Wednesday."

Herbalife donated money to 5 supportive Hispanic groups | New York Post

Originally Posted by JustTooMuchTime

Herbalife donated money to 5 supportive Hispanic groups | New York Post

That is a clean bribery to shut "minority" mouth (as alleged being specifically targeted by the scheme), donated to only those who agreed to support Herbalife

Originally Posted by JustTooMuchTime

Herbalife donated money to 5 supportive Hispanic groups | New York Post

There is a LONG history of people running scams who were very generous in the community, figure it is plenty easy when you are spending other people's money. Not that this is what the donation is all about, am sure it is well intended.

"Investor Ackman to detail Herbalife's China business on call
- By Svea Herbst-Bayliss

Feb 28 (Reuters) - Billionaire investor William Ackman, who has long claimed Herbalife Ltd is a fraud, on Friday said he would provide proof next month that the nutrition and weight-loss company is running a pyramid scheme in China.

Ackman launched his latest broadside against Herbalife on Friday morning in a short press release that promises details about his investigation into the company's business in China. He will hold a conference call on March 11.

"The report will show that Herbalife's business in China operates much like the company's business in the rest of the world - as a pyramid scheme," the release said.

Herbalife has steadfastly denied running a pyramid scheme, where participants earn more in recruiting new members into the operation than from selling the company's products outside of the network.

Herbalife did not immediately respond to requests for comment on Friday morning.

For more than a year, Ackman's $12 billion Pershing Square Capital Management hedge fund has bet just over $1 billion that Herbalife's share price would eventually fall to zero amid regulatory scrutiny. So far no regulator has acted, and the bet has lost money, ranking as the biggest loser in the fund's 10-year history.

Shares of Herbalife were down 0.1 percent at $66.93 in morning trading in New York.

But Ackman has said he remains optimistic. He and his staff have met with U.S lawmakers and regulators to push their case, and civil rights groups have joined in the battle against the company by claiming that its promises that people can earn money fast by becoming a distributor are untrue.

Ackman has highlighted some of Herbalife's top distributors on a website in the last several weeks.

Friday was also the deadline set by U.S. Senator Edward Markey for the Securities and Exchange Commission and the Federal Trade Commission to respond to his request that the two regulators probe the company."

Original:
Investor Ackman to detail Herbalife's China business on call | Reuters

"BOSTON, Feb 28 (Reuters) - The U.S. Federal Trade Commission on Friday refused to say whether it is taking any action on allegations made against Herbalife but said it is considering a U.S. lawmaker's concerns about the company."

U.S. FTC says considering lawmaker's concerns about Herbalife: Thomson Reuters Business News - MSN Money

From: http://www.markey.senate.gov/imo/med...ife_Markey.pdf

"The Honorable Edward J. Markey
United States Senate
Washington, DC 20510

Dear Senator Markey:

Thank you for your January 23, 2014 letter regarding your concerns about Herbalife,
Ltd.'s business practices. I appreciate your thoughts about this matter and your commitment to
protecting consumers.

As you know, the Commission has been directed by Congress to protect consumers from
deceptive or unfair acts or practices, pursuant to the Federal Trade Commission Act (FTC Act),
15 U.S.C. §§ 41-58. In interpreting Section 5 of the FTC Act, 15 U.S.C. § 45, the Commission
has determined that a representation, omission, or practice is deceptive if (1) it is likely to
mislead consumers acting reasonably under the circumstances; and (2) it is material; that is,
likely to affect consumers' conduct or decisions with respect to the product at issue.

The Commission works actively to curb deceptive health claims and, in the last decade
alone, it has brought 77 law enforcement actions challenging deceptive weight loss advertising.
As you noted in your letter, the Commission just announced its most recent initiative in this area,
Operation Failed Resolution, in January 2014.1 In addition to the law enforcement actions,
Operation Failed Resolution included the release of Gut Check, an updated business guidance
publication on screening ads for false weight loss claims directed at publishers and other media
outlets.2 It also included "FatFoe," an educational teaser website to help consumers identify and
avoid such claims.3

The Commission also takes seriously the harm illegal pyramid schemes have on
consumers and has used its authority under Section 5 of the FTC Act in appropriate cases. For

1 A press release detailing the initiative, which included four law enforcement actions, can be found on the
Commission website at Press Releases | Federal Trade Commission
weight-loss-products-settle-ftc.
2 This publication is available on the Commission website at http://www.business.ftc.gov/documents/gut-check-
reference-guide-media-spotting-false-weight-loss-claims.
3 Another consumer education publication, Weighing the Claims in Diet Ads, along with other weight loss and
fitness related materials, is available on the Commission website at https://www.consumer.ftc.gov/articles/0061 -
weighing-claims-diet-ads.

example, since 1996, the FTC has brought 15 cases alleging that purportedly legitimate multi-
level marketing companies were in fact pyramid schemes in masquerade. Most recently, last
year the FTC filed a case against Fortune Hi-Tech Marketing, Inc. and related entities.4 The
FTC alleged, among other things, that the defendants operated an illegal pyramid scheme and
falsely claimed consumers would earn significant income for selling various products and
services. In reality, the FTC charged that nearly all consumers who signed up with the scheme
lost more money than they ever made. The FTC further alleged that to the extent consumers
could make any income, it was mainly for recruiting other consumers. This case is in litigation.

In addition, the FTC also recently won a victory in a similar case against BurnLounge,
Inc. and several of its top promoters.5 The FTC sued these defendants for operating a pyramid
scheme, making deceptive earnings claims, and failing to disclose that most consumers who
participated would not receive substantial income, but instead would lose money. More than
56,000 consumers fell victim to this operation. In March 2012, a court in the Central District of
California entered a final judgment and order against BurnLounge, Inc. and several of the other
defendants. The final order requires the defendants to pay close to $ 17 million for consumer
redress. It also prohibits them from engaging in pyramid, Ponzi, or chain letter schemes or any
schemes in which compensation for recruitment is unrelated to the sale of products to customers
who are not participants. Additionally, the order bars misrepresentations about multi-level
marketing operations or business ventures. The case is currently on appeal to the United States
Court of Appeals for the Ninth Circuit.

With respect to the allegations against Herbalife, Ltd., a number of statutory provisions
and the Commission Rules of Practice prevent me from discussing what action, if any, the
Commission may take in any particular situation. I can assure you, however, that the
information you provided and the concerns you expressed are being carefully considered. In
general, in determining whether to take enforcement or other action, the Commission may
consider a number of factors, including the nature of the practices at issue; the type of violation
alleged; the likelihood of preventing future unlawful conduct and securing redress or other relief;
the nature and amount of consumer injury at issue; and the number of consumers affected.

Complaints from consumers can provide valuable information that we frequently use to
identify deceptive and unfair practices in the marketplace. Therefore, please encourage your
constituents to file their complaints with the FTC, in English or in Spanish, by visiting the FTC's
online Complaint Assistant at https://www.ftc.gov/complaint or by calling 1-877- FTC-HELP
(1-877-382-4357).

4 See FTC v. Fortune Hi-Tech Marketing, Inc. et al., 13-CV-578 (N.D. 111. Jan. 24, 2013); Press Release, FTC
Action Leads Court to Halt Alleged Pyramid Scheme (Jan. 28, 2013), available at http://www.ftc.gov/news-
events/press-releases/2013/01 /ftc-action-leads-court-halt-alleged-pyramid-scheme.
5 See FTC v. BurnLounge, Inc. et al., No. 2:07-CV-03654 (C.D. Cal. June 6, 2007); Press Release, FTC Action
Leads to Court Order Shutting Down Pyramid Scam (Mar. 14, 2012), available at http://www.ftc.gov/news-
events/press-releases/2012/03/ftc-action-leads-couit-order-shutting-down-pvramid-scamthousands.

The Honorable Edward J. Markey

Thank you again for your letter. If you or your staff has additional questions or
comments, please feel free to contact me or have your staff contact Jeanne Bumpus, the Director
of our Office of Congressional Relations, at (202) 326-2946.

Sincerely,



Edith Ramirez
Chairwoman"

"He will hold a conference call on March 11.

"The report will show that Herbalife's business in China operates much like the company's business in the rest of the world - as a pyramid scheme," the release said."

"He and his staff have met with US lawmakers and regulators to push their case, and civil rights groups have joined in the battle against the company by claiming that its promises that people can earn money fast by becoming a distributor are untrue."

Source:
Investor Ackman says will prove Herbalife?s China business is a fraud - BUSINESS - Globaltimes.cn

Thanks for keeping this updated and for the information.

by claiming that its promises that people can earn money fast by becoming a distributor are untrue."

Is a very true statement.

Nice undcover piece by Jessica Smith Cross in MetroNews.ca:

Here's the part where she comes clean about being undercover while meeting
with somebody who was trying to recruit her:

"Coming clean

During my investigation into Herbalife, Rojas didn’t know I was a reporter. When I told him, and showed him the research I’d done on the company, he said people fail because they don’t care or work hard enough.

When he thought I was going to spend $4,000 on Herbalife products to reach the supervisor level, Rojas had promised to make Herbalife work for me — to put all his time into making sure I sold the products I bought and helping me start a Herbalife downline organization of my own. To his credit, he never forced or bullied me to sign up or to spend excessive money up front, he only made a compelling and convincing pitch that it was a good idea that would help me get rich.

When I showed him the numbers on how rarely that happens in Herbalife, he said he wasn’t really aware of them and made an argument that numbers can convince anyone of anything in the world, but don’t necessarily represent the truth.

Rojas acknowledged his own success hasn’t been as great as he hoped, only as great as he’s worked. However, he also said he works incredibly hard and is devoted to the company, something I’d witnessed first hand."

Full undcover report here:
Herbalife investigation: Health products company or pyramid scheme? | Metro

from the same article:

Only about one per cent of the 13,786 Canadian Herbalife distributors made more than $10,000 all year from their “downline” sales organizations and a tiny fraction of those who did—nine people—earned in the hundreds of thousands or millions of dollars.

Eighty-eight per cent of the distributors collected no payments from Herbalife.

However, Herbalife said it has surveyed its membership and says about 70 per cent of distributors join to get a product discount for personal use and never try to make money.

Even among those who have worked to build a business, few are successful. About 17 per cent of the company’s total 13,786 Canadian distributors were “sales leaders with a downline” which means they, or someone in their downline, bought a significant amount of product from Herbalife, and they have recruited others.

However, three out of four people considered “sales leaders” made less than $1,000 in compensation in 2012 Herbalife and only 6.8 per cent made more than $10,000 this way.

Canadian sales make up only one per cent of Herbalife’s global business. The company has a massive market in the U.S., but the rate of success there is nearly identical to Canada’s.

I put this in the wrong section before, so I'm reposting it so that all the HLF news stories are in one place.

Herbalife Ltd. (HLF) SEC Responds To Sen Markey

"The Honorable Edward J. Markey
United States Senate
218 Russell Building
Washington, DC 20510-2107

Dear Senator Markey:

Thank you for your January 23, 2014 letter requesting that the Securities and Exchange
Commission (the "Commission" or "SEC") investigate the business practices of Herbalife, Ltd. to
determine whether it is acting in accordance with the federal securities laws. In particular, you
raised concerns over reports that Herbalife may be a pyramid scheme.

The Commission's investigations are confidential, and the Commission generally neither
confirms nor denies the existence of an inquiry or investigation unless and until made a matter of
public record in proceedings instituted before the Commission or in court. We do this to protect the
integrity and effectiveness of our investigative process and to preserve the privacy of the individuals
and entities involved. Accordingly, we cannot comment on whether SEC staff has investigated, or
is currently investigating, matters related to Herbalife. Nonetheless, we appreciate your letter and
the concerns you raised. I can assure you that we are giving your concerns every consideration.

In your letter, you asked for information in response to several questions. While specific
responses are provided below, it is important at the outset to note some general information
regarding the Commission's authority to enforce the federal securities laws as they relate to illegal
pyramid schemes and legitimate multi-level marketing ("MLM") companies.

The Commission's Division of Enforcement is responsible for investigating possible
violations of the federal securities laws, including unregistered offers and sales of securities and
false and misleading statements in connection with the offer, purchase, and sale of securities. The
antifraud provisions of the federal securities laws prohibit fraud, in the offer or sale, or in connection
with the purchase or sale, of securities. "Securities" include, among other things, a company's stock
and investment contracts offered by a company or promoters. Generally, the Commission's
jurisdiction is limited to investigating and prosecuting misconduct involving securities as defined by
the law and interpreted by the courts.

The Division of Enforcement regularly investigates the accuracy of disclosures by
companies that offer or sell securities. In these cases, Enforcement staff reviews corporate
statements, whether found in SEC filings, in statements by corporate officers, or elsewhere, to
investigate whether such statements are materially false or misleading. For example, the Division
may investigate whether a company or others misrepresented the company's business as having
attributes of a legitimate MLM company when, in fact, the company does not have those attributes.
The Honorable Edward J. Markey
Page 2


The Division of Enforcement also regularly investigates whether promoters offer or sell
securities, and, if so, whether the offerings of securities are registered with the Commission in
accordance with federal securities laws and regulations. In these offering cases, SEC staff reviews
the representations made by the promoters to determine whether the interest offered is a security.
For example, the Division may investigate whether promoters offered and/or sold to investors
securities in the form of investment contracts. Under certain circumstances, an interest in a pyramid
scheme may be an investment contract, and, therefore, a security subject to the Commission's
jurisdiction. Whether an interest is an investment contract depends on the particular facts and
circumstances as applied to the law. The Supreme Court has defined an "investment contract" to
include the investment of money in a common enterprise, with the expectation of profits derived
solely from the efforts of others. SEC. v. W.J. Howey Co., 328 U.S. 293,298-299 (1946).

In the securities law context, a so-called "pyramid scheme" is not a defined term, but rather
generally refers to a type of scam in which fraudsters may pitch as legitimate a business opportunity
in the form of MLM programs. SEC staff has issued an investor alert to warn the public of these
scams, titled Beware of Pyramid Schemes Posing as Multi-Level Marketing Programs, available at
www.sec.gov/investor/alerts/ia pyramid.htm. In this alert, the staff warns that pyramid schemes
masquerading as MLM programs may violate the federal securities laws, such as laws prohibiting
fraud and requiring the registration of securities offerings and broker-dealers. The alert explains
that, in a typical pyramid scheme, money from new participants is used to pay recruiting
commissions to earlier participants —just as in classic Ponzi schemes, where money from new
investors is used to pay fake "profits" to earlier investors. Recently, the Commission has sued
alleged operators of large-scale pyramid schemes for violating the federal securities laws by falsely
representing these scams to be legitimate MLM programs. For example, in SEC v. CKB 168, 13
Civ. 5584 (E.D.N.Y. 2013), Lit Rel. No. 22846 (Oct. 17, 2013),1 the Commission filed charges to
stop an alleged pyramid scheme. In addition, in an adjudicated settled action, SEC v. Rex Venture
Group, 12 Civ. 519 (W.D.N.C. 2012), Lit Rel. No. 22456 (Aug. 22,2012),2 the Commission shut
down a $600 million fraud that duped approximately one million Internet customers through a
complex investment scam involving a Ponzi scheme promoted as a daily profit-share pool and a
pyramid scheme pitched as a legitimate MLM company.

In addition to the SEC's efforts, other federal agencies also seek to combat illegal pyramid
schemes. See, e.g., Multilevel Marketing | Consumer Information (describing the
FTC's use of federal consumer protection laws to combat pyramid schemes) and
http://www.fbi.gov/scams-safetv/fraud (listing pyramid schemes as a common scheme that the FBI
investigates).

With this general information in mind, below are responses to your specific questions.

1) There is a great deal of opacity surrounding Herbalife's system of compensation.
a) Typically, how many compensation system levels do multi-level marketing
companies have? Is it common to see a multi-level marketing company have

1 See http://www.sec.gov/litigation/Iitrel...13/lr22846.htm.
2 See https://www.sec.gov/litigation/litre...12Zlr22456.htm.
The Honorable Edward J. Markey
Page 3

more than a half-a-dozen? Also, how many compensation system levels does
the typical pyramid scheme have?
b) Hypothetically, if an entity had a turnover rate in excess of 5% each quarter in
its lowest tier, would that be grounds for an investigation into whether the
entity is a pyramid scheme? What if the turnover rate was in excess of 10%?
What if it was in excess of 50%?

Response

The SEC does not maintain specific data regarding the typical number of compensation
levels or turnover rates at either MLM companies or pyramid schemes. As stated above, the
Division of Enforcement's investigations include disclosure and offering cases, and each
investigation depends on its particular facts and circumstances. In disclosure cases, we investigate
whether any statements made about the business are materially false or misleading, including
statements regarding the compensation levels or the turnover rates. In offering cases, we investigate
whether the interest acquired by the investor was a security, and the compensation level and/or
turnover rate might be relevant to that analysis. However, compensation and turnover rates would
be but two of multiple facts and circumstances used to determine whether Enforcement should
conduct an investigation.

2) How a company structures its operations typically provides insight into whether a
company is a pyramid scheme.
a) Is it accurate to state that the more complex a structure and the longer it takes
to rise through it, the more likely it is a company is a pyramid scheme?
b) Can you provide me with information about the pyramid schemes that the
Commission has prosecuted with the least complex structures, including
information about the minimum amount of time it took a distributor who
entered an entity to rise through each of the entity's compensation levels?

Response

Whether a firm is operating an illegal pyramid scheme in violation of the federal securities
laws depends on the particular facts and circumstances, including the complexity of its structure and
its disclosures concerning the structure. Although we do not have detailed information on the
minimum amount of time for distributors to rise through compensation levels, the following
Commission enforcement actions exemplify pyramid schemes involving limited complexity: SEC
v. Universo Foneclub Corporation, 06 Civ. 109040 (D. Mass.), SEC Lit Rel. No. 19715 (Jun. 1,
2006) (two levels);3 SEC v. Lane, 07 Civ. 1920 (M.D. Fla.), SEC Lit Rel. No. 20393 (Dec. 11,
2007) (four levels);4 and SEC v. West, 09 Civ. 1419 (M.D. Fla.), SEC Rel. No. 21182 (Aug. 21,
2009) (four levels).5 In each action, the defendants purported to operate legitimate MLM
companies.

3 See http://www.sec.gov/litigation/litreleases/2006/lr 19715.htm.
4 See Robert E. Lane, Wealth Pools International, Inc., and Recruit for Wealth, Inc., Defendants, and T-N-T Education Company, Inc., Richard H. Lane, Mundo Trade, Inc., Renee Becker, Julia Lane, and First Fiduciary Business Trust, Relief Defendants: Lit. R.
5 See https://www.sec.gov/litigation/litre...09/lr21182.htm.
The Honorable Edward J. Markey
Page 4


3) There have been inconsistent estimates of sales outside Herbalife's distributor network
(i.e. to people who are not distributors). Typically, the more sales occur within a
distributor network in which the products are not purchased by those who would be
expected to ultimately consume them, the more likely a company is to be a pyramid
scheme.
a) Have you investigated the fact that Herbalife's statements changed materially
over time about the percentage of sales outside the network?
i) May 1,2012 Conference Call - Pres. Des Walsh: 70% or higher
ii) May 2,2012 - 8K: We don't keep track
iii) Dec. 19,2012 - CEO Michael Johnson: 90% of customers are outside
the network - "Absolutely"
b) Do you have any idea what the accurate number of sales outside the networks
as a percentage of total sales was for each of the last five years?

Response

As stated above, the Commission's investigations are confidential and the Commission
generally neither confirms nor denies the existence of an inquiry or investigation unless and until we
bring charges against someone involved. Accordingly, we cannot comment on whether the
Commission has investigated, or is currently investigating, matters related to Herbalife.

Thank you again for your letter Please do not hesitate to contact me at (202) 551-2100, or
have your staff contact Tim Henseler, Director of the Office of Legislative and Intergovernmental
Affairs, at (202) 551--2010, if you have any questions or comments.


Sincerely,

• v —
Mary Jo White
Chair"

Original:
http://www.markey.senate.gov/imo/med..._Herbalife.pdf

Originally Posted by littleroundman

three out of four people considered “sales leaders” made less than $1,000 in compensation in 2012 Herbalife and only 6.8 per cent made more than $10,000 this way.

I stumbled on this article the other day that seems to back the above number pretty well. Years back I went to an MLM opportunity meeting, and the couple that presented had driven several states to put on the show. Do that several times and wear and tear on the car alone would top $10,000.

==========================

This sentence struck me as interesting as the "low start up" is often one of the refrains we hear with MLM. When you impute the actual cost that most would need to market it, not so much.

What kind of expenses are required to launch an effective recruitment campaign for a recruitment-focused MLM (a company that places compensation and incentive on recruiting a "down-line")? Jon Taylor estimates a minimum of $25,000 in total expenses (including incentives, products, phone, Internet, give-aways, computer supplies, advertising, travel etc.).

On average, one in 545 are likely to have profited after subtracting expenses and 997 out of 1,000 individuals involved with an MLM lose money (not including time invested)."

The Likelihood of MLM Success

I'm pretty sure the irony of this award being in Russia isn't lost on any of here at RS.

"For the second year in a row, Herbalife (NYSE:HLF), a leading global nutrition company, made the top 20 list of the "Best Social Projects in Russia" for its corporate social responsibility efforts in 2013.

The second annual "Best Social Projects in Russia" recognition program is conducted in collaboration with the Russian Federation government. Its main objective is to identify best practices and social projects among businesses, society and the state, and to promote socially oriented projects of companies. "

Herbalife Wins Top 20 Honors for "Best Social Projects of Russia -- 2013" - WSJ.com

Right now, the link to the photos doesn't work. I've emailed the author. Hopefully it will be fixed soon.

Inside An Herbalife Ltd. Distribution Facility: Photos - Bloomberg

"Herbalife Ltd. (NYSE:HLF), the highly controversial multilevel marketing company selling nutritional and weight loss products faces another foe— the Culinary Workers Union Local 226, one of the most influential unions in the country."

"Geoconda Arguello-Kline, secretary-treasurer of the Culinary Workers Union Local 226, urged Nevada Attorney General Catherine Masto and Federal Trade Commission (FTC) Chairperson Edith Ramirez to investigate the allegations that Herbalife Ltd (NYSE:HLF) is a pyramid scheme"

Full story:
Herbalife Ltd. (HLF) Powerful Union Urges FTC To Investigate

I get it. To them and other investors they don't care whether or not Herbalife is a pyramid scheme or not - they just want to make money. Still, I'd like to record this recommendation here for the sake of history:

"After reviewing the quarterly reports and outlooks on the quarters ahead, the winner of this match-up is Herbalife. Nu Skin had a very impressive fourth quarter, but its outlook and delayed annual report show that the Chinese investigation has affected its operations too much. Today, Herbalife's stock sits more than 20% below its 52-week high and the majority of this weakness simply comes from the crossfire related to Nu Skin's troubles; this represents a great buying opportunity.

Along with the potential price appreciation in its stock, Herbalife will return additional cash to shareholders via its healthy 1.9% dividend and share repurchases. Foolish investors should take full advantage of the inexpensive share price of Herbalife and consider initiating positions right now."

from:
Herbalife or Nu Skin: Which Had the Better Fourth Quarter? (HLF, NUS)

Originally Posted by JustTooMuchTime

I get it. To them and other investors they don't care whether or not Herbalife is a pyramid scheme or not - they just want to make money. Still, I'd like to record this recommendation here for the sake of history:



from:
Herbalife or Nu Skin: Which Had the Better Fourth Quarter? (HLF, NUS)

What happens on stock market should not be called "investing" at least since 1901.
Price moves (up/down) , dramatic jumps is what makes money to traders (there are no "investors" in its natural form)
The stability and slowly growing stock which already accumulates all the future expected earnings in it's price are not attractive and hard to score on.
Even kids can do fundamental analysis now, Buy & Hold strategies stopped working long ago, add computers to the mix and noone can make any money by "investing" in stocks , only if they know something which most do not, or belive in something but that is not investing but betting.

Smart traders do not care what HLF even does or not. They do not care if it dies. They do not even care if it exists.
All they knew that after Ackman exposure on HLF , stock would drop and they knew that HLF will be fighting back and try to restore its image, that did make a great ride. When things will get clearer they would not mind shorting the hell out of HLF. All those earnings estimates are for fundamentalists who rarely make any money at all.

Originally Posted by NikSam

What happens on stock market should not be called "investing" at least since 1901.
Price moves (up/down) , dramatic jumps is what makes money to traders (there are no "investors" in its natural form)
The stability and slowly growing stock which already accumulates all the future expected earnings in it's price are not attractive and hard to score on.
Even kids can do fundamental analysis now, Buy & Hold strategies stopped working long ago, add computers to the mix and noone can make any money by "investing" in stocks , only if they know something which most do not, or belive in something but that is not investing but betting.

Smart traders do not care what HLF even does or not. They do not care if it dies. They do not even care if it exists.
All they knew that after Ackman exposure on HLF stock would drop and they knew that HLF will be fighting back and try to restore its image, that did have a great ride. When things will get clearer they would not mind shorting the hell out of HLF. All those earnings estimates are for fundamentalists who rarely make any money at all.

Excellent points!