HERBALIFE UNDER FTC LENS, FINALLY!

A year after Bill Ackman’s detailed public presentation about Herbalife being a pyramid scheme, the FTC which oversees consumer interests, has finally acted

US Federal Trade Commission (FTC) has launched an investigation into the operations of Herbalife, the multi-level marketing (MLM) company that sells weight-management, nutrition and personal-care products. As per regulatory policy in the US, the FTC cannot publicly comment on the investigation. However, Herbalife itself has confirmed the investigations. In a release, the MLM company said that it had received a Civil Investigative Demand from FTC.

The FTC’s action comes after a year-long push for government scrutiny by Pershing Square hedge-fund manager Bill Ackman who has labelled the company a pyramid scheme and bet $1 billion against it. According to New York Times, the Commission’s move, after more than a year of lobbying by Ackman, politicians and civil rights groups, could be a boon for Ackman’s $1 billion bet against the company after a series of setbacks, in particular a strong run-up in Herbalife’s share price.

“The success of Ackman’s wager depends on a collapse of Herbalife’s stock price, and he gains ground when other investors sell their shares because they fear the consequences of a regulatory crackdown on the company,” the report says.

Shares of Herbalife were briefly halted and then dropped Wednesday on the news of the investigation. Herbalife closed Wednesday 7.4% down at $60.57.

Interestingly, this whole Herbalife episode in America had become a battle of wits between hedge funds. Ackman has shorted the stock while, on the other end, Dan Loeb, whose hedge fund Third Point owns 8.9 million shares of Herbalife and feels it is worth more than $55, and has gone long. Ackman thinks it is worth zero.

After a whole year of research, Ackman and his team at Pershing Square Capital Management had come to the conclusion that Herbalife is worthless as a company and one big “pyramid scheme” and “caused and continues to cause enormous harm to the most vulnerable communities in the US and around the world”. He gave a lengthy presentation (a whopping 342 slides were shown) listing out reasons why Herbalife is worthless a company and warned investors and consumers alike to stay away from the company.  He has even put up a website warning consumers about Herbalife. He was hoping that FTC would act which hadn’t happened – until now.

Herbalife is an MLM scheme, which ‘sells’ nutritional and weight-management products, in as many as 84 countries since 1980. It makes money not by selling product directly to you and me but by recruiting sales people, which recruits more sales people, which in turn recruits more sales people. The moment you buy its product, you become the sales person. In order to qualify for rewards or bonus, consumers (who become distributors automatically) must recruit (or ‘sell’ Herbalife’s products) so that they meet a stipulated target every month. Not many consumers or distributors get back their money’s worth. It is estimated that failed sales people, those at the bottom of the pyramid scheme, lost as much as $3.8 billion since 1980!

Ever since Ackman blew the lid on Herbalife’s business model, Wall Street has been furiously discussing whether or not the company is running a pyramid scheme. The comprehensive evidence gathered by Ackman, is damning. In February, Herbalife, which has repeatedly denied that it is a pyramid scheme, met with Congressional officials to explain its business.

One of the biggest and most promising markets for Herbalife is India. Moneylife has been lobbying hard for stringent regulations and banning of MLM schemes in India. We had also covered the Herbalife episode in three parts. You can access Part I, Part II  and Part III .

Last year February Herbalife, which has come under the radar of the US Securities Exchange Commission, roped in Girisha Hosanagara Nagarajegowda (HN Girisha), the London paralympics silver-medallist and Padma Shri awardee, as its brand ambassador in India. Girisha was roped in to endorse and promote the controversial “Formula1 Nutritional Shake” and “Afresh Energy Drink Mix” of the MLM company.

According to Ackman, Herbalife’s Formula1 (for which Girisha has been signed as brand ambassador) is the costliest nutritional powder among six other brands. Formula1 power comes at $2.87 per 200 calorie serving, while all other powders from Abbott Labs, Unilever and GNC are available between 88 cents to $1.74 per 200 calorie serving. This is just an example. All other products from Herbalife are overpriced compared with similar products.

Comments

  1. says

    Dost, Herbal products Dekhakar PYRAMID business Karnebale Fraud MLM company Dasha Ke barme Kya kaha jae. Unehene Aam Admi ko loote he.Hamare R.C.M Sathione Agar Products Per kam karenge to E jitna Herbal Bolkar fraud business karne bale company Bale Rato Rato Des chodkar chalejenge.Likin Hamare sathione Tatkal income ko pane kelie SUNDAR SYSTEM ko Bigade dete he.Aab R.C.M ki plan jo bana he isme, jute bolnebale, aur Rato Rato Coredpati Banane ki bat karne balo ki AKAL GUDUM Hojega.R.C.M ki products bhaut acha he aur Aam admi iskelie Tadap Rahe Dost. Esi barme Koi Nehi sochta, Anyatha Kese Leg Bhadega aur income aega, Ese barme sochte sochte Sare Syatem ko Bigade dete he. Jay R.C.M. MOB-09937538512

  2. says

    sabase pahale imandari hona jaruri hai bharat mai jo bharstachar ka jar hai woh paisa hi hai RCM mai bhi to BPL ka ration tatha distibutor ke points ke paise RCM ke karta dharta log [Chhabara Bandhu] kha gaye yadi points ke paise wapas karte hai to aage bhi chal sakta hai nahi to yah dhokh dhari hi mana jayega yadi yesa nahi hai to ush samaya kyon bhag rahe the jo hamane akhabar mai para tha logo ko kaise samjhaoge

  3. says

    Dost,Rajender Nath Me Aap ki Bat Padha Aur Me Sochta hu Ki Aap Sayad R.C.M ko Lekar Kuch Galat Feme He.Ehi Srif Aap ki Nehi,BUT 99.9 Ke logke pash he.Dekhie Dost R.C.M me kuch galti tha, Likin Itna jo bolte he itna nehi.Jo Akhabar ki bat karte ho,unhene bastbik CHHABRA Bandhu se Paise Na milne Ke Karan, Ese Khabr Chap RAHETHE.E sare media bale Unki business kelie 90% khabar jhut chapte he.1970 se Lekar 1990 Tak RAJYA SABHA me SADASYA RAHENE BALE EK M.P UNKI NAM: Brhama nanda Panda {jo ek lekhak,kabi aur shitikya bhi he}KHATHA agar log 1sal tak Paper padhna choddenge to Desi ki 99% Problems Solve Hojega.Aur R.C.M chalne ka bat jo he Me Challange Ke Sath Kahata hu 2015 April ke Bad R.C.M EK MAHASAKTI KE RUP ME UBREHEGA,JISME SARE ALAG CONCEPTS AUR BHYBASTHA KA NAM NISANO KO SEMET KAR MITI ME MILADEGA.Aab PRODUCTS PER JO KAM CHALRAHA HE, WO THE ALAG ANDAZ PER ARAHE HE. Jay R.C.M. MOB-09937538512

  4. Rajendra says

    Manoj Ji
    Apka Lekh padha utsahvardhan karne ki drasti se badhiya hai kintu sachachai par parda dalne se sachachai kuch samay ke liye dhak sakti hai lekin bad me pardaphash ho hi jata hai. Yadi apko lakta hai Jo RCM ke Khilaph bolte ya likhte hai ve na samajh hai RCM ko Samjha nahi hai. Dhhunya youn hee nahi uthta kanhi na kanhi chingari lagi hoti hai. RCM ne Galti kee thi so uski saja use bhugatni padi ham dusro ko dos dekar apni sachachai nahi chhipa sakte. Mana ki Media hee nahi achchhe bure log sabhi jagah hai. lekin pure media ko dos dena galat hai. kyonki media hee to vah ayeena hai jo desh-videsh me ho rahi halchal ko hamare samne rakhta hai. Vaise Bhee Adhikansh MLM * Murkh Banayo Paisa Kamayo* ke Sidhant Par Hee Chalte hai.

Leave a Reply