
Why does the government let a company like Herbalife stay in business? - xoxoy
https://www.latimes.com/business/story/2020-08-28/herbalife-lawbreaking-companies
======
csours
I have no idea how you're supposed to find this organically; Here's the PDF
that tells the tale:

[https://opportunity.herbalife.com/Content/en-
US/pdf/business...](https://opportunity.herbalife.com/Content/en-
US/pdf/business-opportunity/StatementAverageCompensation2011EN.pdf)

In 2011, in the US ~351,000 people were on the roles as individual sellers.
The pdf even acknowledges "Single-level Distributors benefit from buying
Herbalife products at a preferred price for their consumption and that of
their families, and for many this is the only benefit they seek."

Those 351,000 people are the product for the "Supervisors"

Here's another one for 2013: [https://opportunity.herbalife.com/Content/en-
US/pdf/business...](https://opportunity.herbalife.com/Content/en-
US/pdf/business-opportunity/statement_average_gross_usen.pdf)

400,000 people who earned nothing at all from herbalife as individual sellers
(they could potentially profit from selling product, but that's quite rare, it
looks like 50,000 people bought more than the minimum [see footnote in pdf]).

Next, 43,000 people who could potentially earn money from their downline (see
the 400,000 chumps above); but only 2,300 actually did earn anything at all.

Next, the actual winners in the pyramid: 73,000 people at the top. But wait,
18 percent earned $0 and another 56% earned $250 on average. So how many
people in the pyramid earn above minimum wage? Something like 2,600 people.

~~~
dmurray
This is reassuring, if anything. Those numbers make it sound like it's mostly
just a business with an unusual sales and marketing mechanism. The vast
majority of the customers aren't taking part in the "pyramid scheme" part of
the enterprise. They're just buying herbal supplements because they make them
feel better or maybe their neighbour pressured then into it. All slightly
skeezy but no worse than most retail businesses selling discretionary items.

It would be much worse for society if most of the "individual sellers" were
buying large quantities of the useless product, intending to sell it on but
never being able to.

What proportion of people in the distribution/consumption pyramid for Coke
earn above minimum wage from distributing or consuming Coke? Surely a lot
fewer.

~~~
gruez
>The vast majority of the customers aren't taking part in the "pyramid scheme"
part of the enterprise. They're just buying herbal supplements because they
make them feel better or maybe their neighbour pressured then into it. All
slightly skeezy but no worse than most retail businesses selling discretionary
items.

That's one interpretation. The other interpretation is that herbalife has
reached a saturation point where there aren't any suckers to sign up anymore,
and all the "customers aren't taking part in the 'pyramid scheme'" are just
the bag holders.

------
lefstathiou
Our own government perpetuates the greatest of all frauds, the lottery, over
the poor and uneducated to the tune of tens of billions a year. I’ve tried all
my life to get my mother to stop buying tickets and she simply won’t despite
being a complete dependent of her children (and she’s never won decades
later!). It’s a sickness.

Herbalife (and Casinos) for that matter feed off that sickness as well. It’s
hard to rationalize banning one and not ban the others and from my ignorant
perspective, American society is not in a place where it can collectively come
to a consensus to end industries that feed off of the intellectual, emotional
and psychological deficiencies of people. The machine is just too big.

~~~
smabie
It's pretty common for not poor people to buy lottery tickets. When the NY
lottery was really big about 3 years ago, everyone at my old firm put in a
$100 (so like 7k total) to buy tickets. Ended up winning $200, so we bought
some champagne.

I noticed other firms doing the same thing, with the convenience store guy
telling me that the building in total spent over 100k on lottery tickets
within a week or so.

Moreover, the lottery isn't a fraud. The mechanisms and payouts are all known,
much like roulette or blackjack. We have a word for it, and it's called
gambling (not fraud).

~~~
protomyth
I've worked at a couple of places that better than average paid folks pooled
some money to buy Powerball tickets. Its low grade gambling and a little bit
of team building. I do remember the big one in the late 90's we won our money
back which actually was much more difficult than just losing.

I was asked to buy $120 worth of tickets in 94ish and not one damn winning
number showed up on any of the tickets. It was requested I never buy for the
group again.

~~~
cainxinth
I think the people buying scratch offs every week are gambling. The people who
buy a Powerball or Mega Millions a few times a year, when it gets huge, are
just doing it just for entertainment’s sake and have no serious expectation of
winning.

It’s still problematic, but the real argument for keeping the lottery is that
without it, organized crime would start running more of their own numbers
games again.

~~~
phobosanomaly
Agreed. It definitely makes sense from a harm reduction standpoint, keeping
people from turning to more predatory options.

At the same time, it's pretty sickening to see the normalization of dangling a
pipedream in front of people trapped in lives of 'quiet desperation.'

It's a 60% best solution, where the next best solution is 20% best.

------
millstone
For a harrowing, tragic, and hilarious MLM story, read Elle Beau's blog, it's
a treasure:
[https://ellebeaublog.com/poonique/](https://ellebeaublog.com/poonique/)

People tip-toe around calling MLM what it is, specifically a scam using
psychological tactics of a cult. For example, Dave Ramsey (host of a highly
popular financial radio show and podcast) condemns credit cards in fiery
rants, but uses carefully measured terms when talking about MLM. "Most people
lose money, but a few can be very successful..."

Something about MLM gets people scared to tell the truth. I think that
everyone knows a friend or family member in MLM, and don't want to risk that
relationship. Of course that's what MLM preys on.

~~~
phobosanomaly
I mean, Dave's not wrong. If you had a few beers with folks in an MLM who kind
of know the deal, what percentage would admit to hoping to be one of the 'got
in early and made some money' folks without being too terribly concerned about
those at the bottom of the pyramid getting fleeced.

------
smabie
Bill Ackman of Pershing Square tried really hard to publicize their shittiness
for his massive short bet on Herbalife. There's even a documentary about it.
Never seemed to work. Not sure how much he lost in the trade, but a tidy sum,
to say the least.

Of course it didn't help that Carl Icahn was on the other side of the trade.
Herbalife's stock has done really well for a company that sells no real
product and has no real value.

~~~
csin
[https://en.wikipedia.org/wiki/Betting_on_Zero](https://en.wikipedia.org/wiki/Betting_on_Zero)

------
MaysonL
See this link (previously at
[https://news.ycombinator.com/item?id=9714417](https://news.ycombinator.com/item?id=9714417)
on HN) for a different take on Herbalife (by a short seller who went long on
Herbalife and made quite a bit of money).

[http://brontecapital.blogspot.com/2015/06/herbalife-very-
lon...](http://brontecapital.blogspot.com/2015/06/herbalife-very-long-
post.html)

~~~
zaroth
That was a great read, thanks!

------
Animats
Because there is loud grumbling about a "nanny state" when government prevents
people from making probably-stupid business decisions. Multi-level marketing,
initial coin offerings, allowing people without much money to invest in
startups, and casino gambling all lead to most people losing their money.

~~~
Gatsky
I think the “nanny state” concept is poorly calibrated. If you allow entities
to profit from causing harm, or conveniently shift the cost of negative
externalities onto other people, day to day life will eventually become so
adversarial that it is unliveable. This seems to be happening already, as we
are inundated with scam texts, emails and phone calls; children are under
siege from social media, the fast food industry, Juul; whole regions are
routed by the opioid crisis; tobacco related diseases are still one of the top
causes of death; the fossil fuel industry keeps edging us closer to varying
degrees of annihilation.

------
goldcd
Well I think it's pretty simple - MLM companies contribute more in political
funding, than than the perceived detrimental aspects of their business hurt
the electoral prospects of our elected representatives.

As a token example -
[https://en.wikipedia.org/wiki/Betsy_DeVos](https://en.wikipedia.org/wiki/Betsy_DeVos)

------
MattGaiser
A lot of it simply comes down to how much you want government to police
behavior. There is only so much irrationality that can be reined in.

There are also legitimate home based businesses. Government regulations tend
to not be very good at telling the difference between legitimate operations
and those which are sketchy, but not outright fraud.

~~~
WarOnPrivacy
>A lot of it simply comes down to how much you want government to police
behavior.

Individual behavior: As little as is demonstrably necessary.

Corporate behavior: Every bit that shapes capitalism into being benign &
overtly beneficial - including police intervention for those on the receiving
end of law-changing campaign donations.

------
reiichiroh
I don’t know why Herbalife, Amway, Primerica and all the MLM pyramid schemes
are technically legal and allowed to exist.

~~~
phobosanomaly
To play devil's advocate, with people tied up in legal pyramid schemes there's
some degree of oversight and public scrutiny. The companies can't egregiously
screw too many people too bad. Anybody who does a little homework can see that
it's a scam because there's a small number of the schemes around, and
Coffezilla has talked about them all ad-nauseum. Vs. if those people were tied
up in illegal/underground pyramid schemes, those schemes might be 1,000x more
predatory and exploitative.

Like payday loans. They're horrible and predatory, but they'll only take your
car, not break your kneecaps if you can't pay.

Addressing market failure in the United States is more damage control and harm
reduction than anything. Our Chesterton's fences are in the form of duct tape
on top of duct tape.

------
bruceb
Season 1 of The Dream podcast is an easy and informative look at mlm.
[https://www.stitcher.com/podcast/stitcher/the-
dream](https://www.stitcher.com/podcast/stitcher/the-dream)

------
lootsauce
Can you say reg-u-la-tory cap—ture

------
pyuser583
We’re not in the nutritional supplements business. We’re in the empire
business.

------
Nuzzerino
Paywall: [https://archive.is/ya5D9](https://archive.is/ya5D9)

------
ggm
A recent conversation on reddit exposed me to somebody who feels its ok to say
card fees are for chumps and fund his no fee high return points wins. I think
predating on ill informed poorer people who incur credit card debt and fees is
wrong personally. Some people think it's OK.

Herbalife is in this spectrum of product: the government is mostly financially
a-moral not moral or imorral and so prostitution income is not untaxable even
if prostitution is. Herbalife has to get closer to the ponzi end of the
spectrum to fall afoul of the law. Right now, it's only appealing to greed.

If herbalife and flyer miles points cards predate willful stupidity then the
government needs a strong drive to legislate because in the end it too is
conflicted.

Its a long bow libertarian position I dont agree with BTW, I think the role of
government is to protect the innocent dupes. But there are thin-end-of-the-
wedge arguments a-plenty here.

If I were king, I'd ban herbalife. If I needed a kings tax income I might not.

~~~
gruez
>who feels its ok to say card fees are for chumps and fund his no fee high
return points wins. I think predating on ill informed poorer people who incur
credit card debt and fees is wrong personally.

Are you talking about interest for carrying a balance, or the various fees you
get hit with if you screw up (eg. late fees, returned payment fees)?

~~~
ggm
I wasn't that specific. I am pretty sure the general principle here is that
any fee you can avoid by rigorous use of the card sensibly, within your limit,
he feels its acceptable to "share" as a benefit the fee free element, where
the profit for the card company is in the late paying, over extended customer.

Carrying a balance and paying card interest rate when secured and unsecured
loan rates are several if not ten or more percentage points lower (card
interest was 20-23% in 2019 when bank loans were under 10% in my economy)
provides the profits which allow richer card holders to avoid costs. This
still feels like predatory behaviour to me.

His "i got the points be like me" is herbalife marketing of the gilt edged
lifestyle which attracts the chumps who pay the cost of his fee free rewards.
Its not implicit, it is explicitly why they offer him and his income bracket
the deal.

~~~
112012123
This depends on the card. For subprime cards, it's true that late fees and
interest charges make up most of credit card companies' revenue. But in the
premium market segment that he's talking about, ~90% of revenue comes from
annual fees and merchant fees. Even customers that never pay a dime of
interest or a single nuisance fee are profitable.

As one case in point, most of American Express' flagship products don't even
allow you to carry a balance (and thus pay interest).

Source: work in the industry

~~~
ggm
What's the cut off for premium above? I was on the Amex lower tiers for work
related stuff and the no max thing was seriously useful for international
travel. Also frightening.

~~~
112012123
It's a bit nebulous, but as a rule high-annual-fee/interest rate rewards cards
are built around this model; the higher the annual fee, the less interest
income a bank expects to earn.

Issuers tend to specialize, too. For instance, banks like Barclays, Chase and
Amex only (intentionally) target prime customers. Chase has been known to fire
customers that suddenly start carrying significant balances on their cards,
for instance.

On the other hand, banks like Capital One and Credit One explicitly target
subprime customers and make the vast majority of their income from interest.
Whereas Amex makes 90% of their card income from annual fees/interchange, for
C1 it's more like 90% interest/10% interchange. Chase is like 65/35
Interchange/interest, for comparison.

For Amex, the simplest rule is that any card named after a color (Amex Gold,
Amex Green, Amex Platinum etc) doesn't charge interest.

Oh - and the Amex charge cards don't actually have no limit. They do have a
line, it's just hidden (and somewhat larger than most credit limits). Amex
actually has a 'check my spending power' tool on their website where you can
plug in a hypothetical purchase and it'll tell you if they would
(hypothetically) approve it.

------
baggy_trough
The premise is exactly backwards. Why should the government be able to put a
company like Herbalife out of business? Adults should be able to decide for
themselves whether to buy products. If they make mistakes by our judgement,
which is always very imperfect, that is their business.

~~~
p1necone
Because Herbalife is not a legitimate business, it's a pyramid scheme with
just enough details tweaked to not quite count as one under existing
legislation.

Do you think people should be able to buy in to Ponzi schemes, or give money
to people running three card monte games on the roadside too?

~~~
lotsofpulp
Ponzi schemes require deception and fraud. Unless Herbalife is defrauding
people, which MLM’s typically do not, there is no comparison.

They are an inefficient allocation of resources for the person investing their
time and money, but the same could be said of many, many other endeavors.

I’d rather resource be spent to teach people how to properly calculate ROI and
IRR.

------
hervature
> Nevertheless, Herbalife recruiting materials were festooned with “images of
> expensive cars and opulent mansions.”

Why does it stay in business? Because there is nothing wrong with a company
that exploits the greed of individuals. Yes, some people are compelled due to
desperate situations. But the solution here is raising the education level
high enough to not succumb to their inner greed. The solution isn't reactively
outlawing knives that cut more people than others.

~~~
liability
> _Why does it stay in business? Because there is nothing wrong with a company
> that exploits the greed of individuals._

There's certainly plenty wrong with it; perhaps you meant to say it's not
illegal.

~~~
smabie
I mean, morality is an opinion, so it doesn't really make sense to try and
correct someone about it.

~~~
nathan_compton
This is an incredibly glib dismissal of an entire area of philosophy.

It may seem intuitively obvious to you that there are not moral facts (it
seemed intuitively obvious that the opposite was true to people even as
recently as 150 years ago) but the debate is hardly settled by any intervening
scientific or cultural or philosophical advancement.

I guess read J.L. Mackie's "Ethics" for an introduction to the subject.

