Herbalife and its supporters argue that it is a legitimate multi-level marketing company that has been growing now for 34 years, sells products that are in demand, and helps many of its 3.7 million distributors worldwide to make a living. It is unclear what the precise details of those probes are, and it is not clear whether they will lead to any action against Herbalife and how serious any such action could be.
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Partly as a result of lobbying by Ackman, there are a series of federal and state investigations into whether Herbalife is a pyramid scheme and related questions. The hedge fund estimates that sellers on average lose about $12,000 per year once rent for the clubs is taken into account. “These are pretend businesses,” said David Klafter, senior counsel at Ackman’s Pershing Square Capital Management.
His team has produced a video in which a series of former Herbalife distributors say they spent thousands of dollars on Herbalife products and training but ended up with losses and products they couldn’t sell. Instead, he has argued that the whole Herbalife system is a pyramid scheme that won’t survive – that it is based on recruiting new distributors to pay existing distributors (their incomes are based on their own sales and on the sales of those they recruit) and that the market will get saturated as more clubs are established often very near existing ones. Food and Drug Administration, though, has not evaluated those claims.Īckman’s main line of attack has not been about the quality of the products and whether they work in controlling weight or improving health. Some doctors allied with Herbalife back the company’s diet claims. Herbalife recommends that those seeking to lose weight replace two of their three meals each day with shakes, which are made with a powder that contains protein and vitamins that is then mixed with soy or nonfat milk and some other ingredients depending on the flavor desired. “When I met her, her stomach was up to here,” Lopez said, holding a hand over Montenegro’s belly. Two customers sipping shakes in a club in Boyle Heights on the east side of Los Angeles, Silvia Lopez and Ana Montenegro, were typical of those who swear by the products. In particular, women with children said they were pleased with flexible hours and the opportunity to bring their kids to work when necessary.
While some of the people running the clubs were struggling to make ends meet, most were optimistic about being distributors of the products.
These claims could not be verified by Reuters but if true the comments cast a favorable light on Herbalife’s products, especially as Hispanics suffer from higher rates of obesity than the overall U.S. In conversations at 10 such clubs that Reuters reporters visited in recent weeks in the Los Angeles area, New York and Newark, New Jersey, more than 20 people said they had lost a substantial amount of weight while consuming Herbalife products. These are consumers who stress their health has improved and distributors who are thankful to have the opportunity to run their own businesses. Yet a visit to some of the clubs that have been set up to dispense the company’s shakes, teas and other items, largely to the Hispanic community in the U.S., shows that it has fans. William Ackman, founder and CEO of hedge fund Pershing Square Capital Management, speaks to the audience about Herbalife company in New York, July 22, 2014.
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