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Thread: Herbalife Will Restructure Its Multi-level Marketing Operations and Pay $200 Million For Consumer Redress to Settle FTC

  1. #1
    Luzer is offline Senior Member
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    Herbalife Will Restructure Its Multi-level Marketing Operations and Pay $200 Million For Consumer Redress to Settle FTC

    Basically, Herbalife was an illegal pyramid that the FTC didn't shut down. They instead fined them and required changes to their operations. Hopefully, requiring actual sales will result in a similar result as Vemma.

    https://www.ftc.gov/news-events/pres...ing-operations


    For example, as stated in the complaint, the average amount that more than half the distributors known as “sales leaders” received as reward payments from Herbalife was under $300 for 2014. According to a survey Herbalife itself conducted, which is described in the complaint, Nutrition Club owners spent an average of about $8,500 to open a club, and 57 percent of club owners reported making no profit or losing money.

    The small minority of distributors who do make a lot of money, according to the complaint, are compensated for recruiting new distributors, regardless of whether those recruits can sell the products they are encouraged to buy from Herbalife.

    Finding themselves unable to make money, the FTC’s complaint alleges, Herbalife distributors abandon Herbalife in large numbers. The majority of them stop ordering products within their first year, and nearly half of the entire Herbalife distributor base quits in any given year.

    The settlement announced today requires Herbalife to revamp its compensation system so that it rewards retail sales to customers and eliminates the incentives in its current system that reward distributors primarily for recruiting. It mandates a new compensation structure in which success depends on whether participants sell Herbalife products, not on whether they buy products.

    For example:
    The company will now differentiate between participants who join simply to buy products at a discount and those who join the business opportunity. “Discount buyers” will not be eligible to sell product or earn rewards.
    Multi-level compensation that business opportunity participants earn will be driven by retail sales. At least two-thirds of rewards paid by Herbalife to distributors must be based on retail sales of Herbalife products that are tracked and verified. No more than one-third of rewards can be based on other distributors’ limited personal consumption.
    Companywide, in order to pay compensation to distributors at current levels, at least 80 percent of Herbalife’s product sales must be comprised of sales to legitimate end-users. Otherwise, rewards to distributors must be reduced.
    Herbalife is prohibited from allowing participants to incur the expenses associated with leasing or purchasing premises for “Nutrition Clubs” or other business locations before completing their first year as a distributor and completing a business training program.

    Under the order, Herbalife will pay for an Independent Compliance Auditor (ICA) who will monitor the company’s adherence to the order provisions requiring restructuring of the compensation plan. The ICA will be in place for seven years and will report to the Commission, which shall have authority to replace the ICA if necessary.

    The settlement also prohibits Herbalife from misrepresenting distributors’ potential or likely earnings. The order specifically prohibits Herbalife from claiming that members can “quit their job” or otherwise enjoy a lavish lifestyle.

    In addition, the order imposes a $200 million judgment against Herbalife to provide consumer redress, including money for consumers who purchased large quantities of Herbalife products (such as many Nutrition Club owners, among others) and lost money. Information on the FTC’s redress program will be announced at a later date.

    The Commission votes authorizing the staff to file the complaint and stipulated final order, and to issue a Statement of the Commission, were 3-0. The complaint and the stipulated final order will be filed shortly in the U.S. District Court for the Central District of California.

    NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. Stipulated final injunctions/orders have the force of law when approved and signed by the District Court judge.

  2. #2
    Soapboxmom's Avatar
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    Re: Herbalife Will Restructure Its Multi-level Marketing Operations and Pay $200 Million For Consumer Redress to Settle

    Lots of great commentary about this:

    Ackman Emerges Victorious Over Herbalife - Herbalife Ltd. (NYSE:HLF) | Seeking Alpha

    Herbalife still defiant after FTC settlement, says business model will remain unchanged - Herbalife Ltd. (NYSE:HLF) | Seeking Alpha

    Herbalife will sink under the weight of a reorganized business model that will make it very difficult to lure in and retain warm marks.

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    Re: Herbalife Will Restructure Its Multi-level Marketing Operations and Pay $200 Million For Consumer Redress to Settle

    Facts About Herbalife Scam | The Truth About the Herbalife

    This site is just loaded with goodies!

  4. #4
    Soapboxmom's Avatar
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    Re: Herbalife Will Restructure Its Multi-level Marketing Operations and Pay $200 Million For Consumer Redress to Settle

    Another awesome read. The snippet should wet everyone's appetite!

    FTC Neuters Herbalife: Injunctive Relief Effective Immediately - Herbalife Ltd. (NYSE:HLF) | Seeking Alpha
    I have taken my time to provide an easy-to-read summary of the injunction for more casual readers and investors interested in the matter: • Herbalife must pay a $200 million penalty to the FTC within 7 days via electronic fund transfer. The money will be used to compensate victims of Herbalife's "business opportunity" scam which misled participants into believing that they could make reliable income by recruiting others into the scheme.
    • Herbalife cannot seek to have the $200 million returned. The money now belongs to the FTC as of signing. If any money remains, it will be used for educating consumers or other related services relating to Herbalife's offenses. If money still remains, it will be deposited to the U.S. Treasury, and there is nothing Herbalife can do about it.
    • "Business opportunity participants" and "preferred customers" shall now be accounted for separately.
    • Preferred customers are buyers of discounted Herbalife products for personal use, but cannot sell products or recruit.
    • Business opportunity participants may sell products and recruit, but they shall no longer receive any sort of compensation for simply recruiting new participants.
    * For the sake of easier reading, I shall refer to "business opportunity participants" as distributors and "preferred customers" as members.
    • Potential distributors are no longer required to purchase a minimum quantity of products. Furthermore, if a startup package is purchased, there will be no multi-level compensation given to the recruiter for the purchase.
    • Essentially, there are no longer any incentives for distributors to recruit others into Herbalife. Money can only be made by legitimately selling products. Furthermore, sales must be verifiable, and there are new regulations on how sales will be documented. There are also mechanisms in place to discourage falsifying sales in an attempt to game the commission structure. Commissions are limited and can be earned only through selling products.
    • Herbalife must now offer new distributors the option of a full refund for one year. If products are returned, Herbalife is responsible for all shipping and handling costs, and must also refund fees and taxes. Herbalife must also clearly disclose that distributors have this refund option available to them.
    • The refund policy must be stated conspicuously on every invoice and receipt as well as websites and applications and promotional flyers and brochures.
    • Herbalife is permanently prohibited from telling anyone in any shape or form that becoming a Herbalife distributor is a profitable endeavor. This especially includes telling members and audiences that participating in Herbalife business opportunities will result in a lavish lifestyle.
    • Herbalife may no longer make income claims, whether part-time or full-time. No more telling people that they can quit their jobs and make more money than they ever dreamed possible if they became a Herbalife distributor. No more misleading "motivational speeches" about becoming financially independent, retiring rich, or earning millions of dollars. Herbalife may no longer say or imply anything of that nature in any shape or form.
    • Herbalife is prohibited from even talking about how much money a particular distributor has made, as it is implying that others might have the same result or somewhere close to it.
    • Herbalife is also permanently banned from giving any reasons as to why their distributors do not profit from Herbalife. For example, they cannot say that distributors fail because "they didn't work hard enough" or that "they gave up on themselves."
    • Herbalife is permanently banned from using marketing material that shows nice houses, exotic cars, and private jets - or any content that implies or suggests that selling Herbalife will lead to an "improved lifestyle."
    • Business opportunity participants cannot lease or buy land to create Herbalife nutrition clubs (where meetings have historically taken place) unless they have been in business for 12 consecutive months, completed mandatory training courses which are now required for all distributors, and have written a business plan for Herbalife management or the independent compliance auditor.
    • Business opportunity participants must now keep track and disclose information such as:

    • Source of funds used to cover start-up costs
    • Where they intend to conduct business
    • What products they are selling
    • Their marketing strategy
    • Estimates on monthly and annual volume of customers needed to be profitable
    • Income forecasts
    • Overhead and operating expenses each month for the first two years of operation.

    (In short, a big headache for many of Herbalife's pseudo-entrepreneurs. They are likely to find all the regulation and disclosure too much of a hassle for an opportunity that is not even profitable.)
    Down the commode it shall go!

  5. #5
    Char's Avatar
    Char is offline Senior Scambuster
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    Re: Herbalife Will Restructure Its Multi-level Marketing Operations and Pay $200 Million For Consumer Redress to Settle

    I sure hope Mark Kay is next, or I might be inclined to accuse the FTC of discrimination against women for disregard of their losses.
    "the MLM emperor "has NO CLOTHES". Pointing out particular freckles on the emperor's hiney is not necessary. The man is stark naked, for crying out loud." - http://www.vandruff.com/mlm_FAQ.html

  6. #6
    Luzer is offline Senior Member
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    Re: Herbalife Will Restructure Its Multi-level Marketing Operations and Pay $200 Million For Consumer Redress to Settle

    The courts signed the injunctions on Herbalife on July 25th. I hope the FTC actually enforces the injunctions hard. I want to see a repeat of Vemma.

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