Herbalife Scam Investigation
ABC’s Brian Ross gets answers from company under federal investigation.
ABC’s Brian Ross speaks to former Herbalife executive being paid by Wall Street hedge fund manager.
Few people who join Herbalife will ever make any money from the company.
Those who do, make money primarily from recruiting new Herbalife distributors, convincing them to buy product, and getting them to recruit even more distributors. Simply put, because Herbalife’s incentive structure rewards recruiting as opposed to retail product sales, Herbalife is a pyramid scheme. It lures in new distributors by promising riches and preying on entrepreneurial dreams but the truth is that 89% of Herbalife distributors will never earn a penny from the company.
The health drinks firm big in the US and spreading fast in the UK, attracting devoted salespeople. But it faces accusations of sophisticated pyramid selling.
Earlier this month thousands of people flocked to the cavernous Wembley Arena to attend an anniversary bash organised by Herbalife, the California-based “multilevel marketing” giant.
The company, whose name appeared on David Beckham’s shirt when he played for LA Galaxy, has shares listed on the New York Stock Exchange. It is also booming in Britain. Its sales here soared by 64pc during the first quarter of this year. Herbalife boasts revenues of more than £3bn worldwide and sells diet products such as meal-replacement shakes and vitamin supplements. But its products are not sold in shops.
It operates in more than 90 countries through a sales force of three million “independent distributors” who are compensated not only for their sales but also for the sales of the other distributors who they recruit – a practice commonly known as multilevel marketing.
At Wembley, videos of footballer Cristiano Ronaldo and images of colourful protein shakes flashed up on huge screens and strobe lights whirled over the crowd. Dr David Heber, chairman of Herbalife’s nutrition advisory board, made his way to the stage to the sound of thumping pop music as attendees clamoured to get his autograph.
Herbal Life Scam – Multi-level marketing: opportunity or illusion?
Multi-level marketing (MLM) – which allows anyone to sign up and sell a company’s products and receive compensation from other salespeople they recruit – has boomed over the last three decades. It was almost outlawed in the Seventies after two court rulings concluded the practice was unfair and deceptive. However, a landmark 1979 ruling in favour of health care product company Amway opened the floodgates.
Today, there are thousands of MLM businesses all over the world and the industry boasts annual global revenues of more than £120bn.
Over the years, it has been dogged by controversy. In the US, the California Attorney General sued Herbalife in the mid-Eighties for making inflated claims about its products and the company has faced a number of class-action lawsuits. Meanwhile, in the UK, the Government tried to close down Amway in 2008 before forcing it to make significant changes to its operations.