The FTC Investigates Herbalife

Joecool

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http://www.usatoday.com/story/money/business/2014/03/12/herbalife/6330287/

Illegal pyramid or not?


Herbalife shares sank as much as 15% in Wednesday trading after the nutritional supplements marketer said it is under Federal Trade Commission investigation.

Shares were up $2.91 (4.5%) to $68.30 before trading was halted at about 1:15 p.m. Trading opened about 30 minutes later. By day's end, Herbalife rebounded, closing down 7.4% to $60.57.

The trading halt and stock gyrations came after Herbalife said it had received a "civil investigative demand" from the FTC, but declined to elaborate.

"Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace, and will cooperate fully with the FTC,'' the company said in a statement. "We are confident that Herbalife is in compliance with all applicable laws and regulations."

The company's business plan has been criticized for months by Pershing Square hedge fund investor Bill Ackman, who made a $1 billion bet on the stock's collapse in December 2012 and had lobbied regulators and members of Congress to investigate the company's business practices.

In a Tuesday webcast, Ackman repeatedly called Herbalife's multi-level marketing and sales practice a pyramid scheme and charged that the company was violating Chinese labor laws. Herbalife denied Ackman's accusations in a statement Tuesday.

Ackman's efforts to bash Herbalife have drawn criticism and protracted exchanges from activist investor Carl Icahn, who aligned himself with management and amassed a 13% stake in the company last year. Icahn has said Herbalife is undervalued.

Herbalife had 2013 sales of $4.8 billion, up from about $4.1 billion in 2012. It markets energy and fitness snacks, drinks, vitamin supplements and skin care products through 3 million distributors in over 90 countries.
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Not that I like Herbalife, but I really don't like the idea that someone can short a stock, then use their governmental connections to force the company out of business.
 
rustypouch said:
Not that I like Herbalife, but I really don't like the idea that someone can short a stock, then use their governmental connections to force the company out of business.
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Ackman is still in the red with his short. I highly doubt that Herbalife will be shut down anyway. They'll have enough loopholes and Herbalife will make some concessions and all be will good.
 
rustypouch said:
Not that I like Herbalife, but I really don't like the idea that someone can short a stock, then use their governmental connections to force the company out of business.
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agreed.

I'm curious about Icerat's opinion on Herbalife. They do at least have a product, so it's in the grey area of legit MLM.
 
I think it's a wonderful incentive that people can profit from exposing corruption. As long as they are transparent and not trading on insider info, all is good.
 
ThunderChunky said:
I think it's a wonderful incentive that people can profit from exposing corruption. As long as they are transparent and not trading on insider info, all is good.
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The FBI is also looking into Herbalife now.

http://www.latimes.com/business/mon...-tumble-20140411,0,687262.story#axzz2z56WO9Jf

By Walter Hamilton and Richard Serrano
April 11, 2014, 3:15 p.m.
Shares of Herbalife Ltd. suffered their biggest loss in more than a year Friday following a report that criminal authorities are investigating the Los Angeles nutritional products company.

The FBI has launched a criminal investigation of Herbalife and its web of independent distributors, a federal law enforcement source told The Times.
A federal law enforcement official in New York confirmed Friday that the FBI had opened an inquiry into Herbalife but did not know first-hand the extent of the investigation. “I can’t give any guidance on where it’s headed,” the official said.

The official asked not to be identified because he was not authorized to speak about publicly about the investigation, which was first reported by the Financial Times.

At the FBI, Christos Sinos, a supervisory special agent, did not deny that an inquiry was underway. Rather, he said simply, “We are not commenting.”
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CynicalSkeptic said:
agreed.

I'm curious about Icerat's opinion on Herbalife. They do at least have a product, so it's in the grey area of legit MLM.
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I think it's extremely unlikely Herbalife will be shutdown, but I do think they have two issues with regard any investigation -

(1) There were a number of "high achievers" that were well known MLM hoppers whose business was essentially selling worthless "lead generation" systems rather than Herbalife per se. These systems (and the guys doing it jump between businesses) get a lot of people to join with the promise it's much easier, no sales etc (Amway had a similar problem at one stage) but they have extremely high turnover in an industry that already has high turnover, and very little of the product sales is from legitimate consumer demand. Only when this whole Ackman thing started to blowup did Herbalife take action and terminate the offenders.

(2) There are aspects of their compensation plan that I think encourage inventory loading. In essence if you buy a lot of product up front, then you get to qualify as a supervisor and get effectively permanent better commission. Not surprisingly people are thus encouraged to stock up because they can (potentially) make more money faster. In direct sales most people who register never actually do anything, so this means you're inevitably going to have a bunch of people who purchased a whole lot of product to qualify supervisor rather than because of legitimate personal or customer demand. Ackman pretty much claims their whole business model is based on this inventory loading. My analysis of their data indicates it may happen to a certain extent, but the math just doesn't add up to indicate it illegitimizes their entire operation.

I think it's quite possible they could up getting a stern talking to and perhaps fined and made to change some things as the result of any investigation(s), but unless something else shows up the odds of them getting shutdown are pretty close to nil.

Buy. :)
 
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I've done a search and only found one article that discusses (generally) how meal replacements can aid in the obese losing weight but nothing where Herbalife was specifically independently tested in a peer reviewed study and found effective and safe in weight loss.

Can you guys throw me some links if you have them in case I missed something? I scoured for non-Herbalife Herbalife research and came up with studies about liver damage, etc.

Anyone have any links saying that it works?

(In case they ARE out there somewhere, I may have to get my checkbook ready to join a MLM I guess... I bet a Herbalife guy that he couldn't find supporting research...)
 
There's quite a lot of research on partial meal replacement programs as a successful aid to weight loss, which is the type of program Herbalife promotes, so it's reasonable to believe it would work.

Regarding Herbalife specifically, this paper tests high protein vs conventional weightloss plan, finding both worked but HP worked better. Herbalife products were used for both groups.

So that's a peer-reviewed published paper showing efficacy of Herbalife products. I'm not a Herbalife guy though, so you don't need to pay up :)
 
Thanks icerat!

I didn't find what you are linking to...

Can you please give me the name of the study from your Medscape link? It is sending me to the login screen.

Thanks!
 
FSM said:
Thanks icerat!

I didn't find what you are linking to...

Can you please give me the name of the study from your Medscape link? It is sending me to the login screen.

Thanks!
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try this pubmed link

ETA: That's abstract only, the article is in a paid journal. Relevant text from the published paper is -

In both groups, men were taught to consume
1500 kcal daily, women 1200 kcal daily. For meal
replacements, both groups used a nutritional shake
mix (ShapeWorks Formula 1, Herbalife, Los Angeles,
CA); only the HP-plan group used a protein powder
(ShapeWorks Formula 3, Herbalife), while the
C-plan group used a food substitute made of malt
dextrin. All the above were handed to the subjects in
the clinic.
 
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Joecool said:
Even if Herbalife's products might work, that doesn't mean their business opportunity is a viable one.
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Selling bullcrap in the supplement/fitness/health community is highly profitable. But it's better to just create your own line of crap than to sell someone else's.
 
ThunderChunky said:
Selling bullcrap in the supplement/fitness/health community is highly profitable. But it's better to just create your own line of crap than to sell someone else's.
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Yep. And there are tons of contract manufacturers that will set you up a small run of around 500 bottles of a custom blend of known ingredients for about 20%-40% of retail value.

I've been tempted to set up my own blend just for the kicks, like a vanity wine, but my wife keeps saying that a college fund for the kids is a better investment. She mean.
 
ThunderChunky said:
Selling bullcrap in the supplement/fitness/health community is highly profitable. But it's better to just create your own line of crap than to sell someone else's.
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Dr. Keith said:
Yep. And there are tons of contract manufacturers that will set you up a small run of around 500 bottles of a custom blend of known ingredients for about 20%-40% of retail value.
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That's a pretty naive view of business. Manufacturing costs are typically within that range or less, it's all the other things that you still have to pay for before you start talking about profit.

Still, it would be an interesting exercise. Here's the ingredients list for their multivitamin. The proprietary herbalife blend used seems to come from Triarco.

Care to make some calls?

I've been tempted to set up my own blend just for the kicks, like a vanity wine, but my wife keeps saying that a college fund for the kids is a better investment. She mean.
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Unless of course you're just doing it to put your picture on the bottle :D
 
icerat said:
That's a pretty naive view of business. Manufacturing costs are typically within that range or less, it's all the other things that you still have to pay for before you start talking about profit.:D
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When you profit you don't just profit off the sales but also the growth in value of the company. After 5 years of selling herbalife all you have is what you earned over that time, if you were building a business you would have that plus the company. I knew someone that did this, he had a niche, made the formula, and marketed it all while being a full time graduate student. Guess who ended up buying his company before he even finished school? There are tons of small brands out there doing this, the barriers to entry are actually very small. Slightly higher than selling t shirts.
 
ThunderChunky said:
When you profit you don't just profit off the sales but also the growth in value of the company. After 5 years of selling herbalife all you have is what you earned over that time, if you were building a business you would have that plus the company.
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That's not correct, and in fact is complete misunderstanding of the attraction of the MLM model. I for example built a network about 16 years ago. I stopped building it about 15 years ago. I worked in semi-seriously for less than a year, but because people I introduced to those products continue to purchase them, I continue to earn an income from it to this day.

Furthermore, larger network can be (and are) sold. I'm aware of cases where distributors have sold their networks for 7 figure sums.

I knew someone that did this, he had a niche, made the formula, and marketed it all while being a full time graduate student. Guess who ended up buying his company before he even finished school? There are tons of small brands out there doing this, the barriers to entry are actually very small. Slightly higher than selling t shirts.
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Oh, I'm not suggesting it's some impossible task, I too know people that have done much the same. It's just that it's not quite as simple as was implied.
 
icerat said:
That's not correct, and in fact is complete misunderstanding of the attraction of the MLM model. I for example built a network about 16 years ago. I stopped building it about 15 years ago. I worked in semi-seriously for less than a year, but because people I introduced to those products continue to purchase them, I continue to earn an income from it to this day.
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Since you like to minimize Amway's problems, let me turn the tables on you.

What percentage of Amway's sales force is YOUR Amway business?
 
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