
The Siege of Herbalife (2015) - todayiamme
http://fortune.com/2015/09/09/the-siege-of-herbalife/
======
randycupertino
Good. I hope he is successful in taking them down. I know too many people
who've wasted $$ falling prey to these MLM scams.

I know an emergency room physician who stopped working as an MD to sell
Arbonne products (another MLM like herbalife that sells makeup and diet
shakes) after getting roped into it by a nurse we worked with. Now she is in
the nurse's "downline." Utter waste of an education.

~~~
EdwardDiego
When my wife and I were under severe financial pressure in the early years of
our marriage, her father spent several hours subjecting us (well, her in
particular) to an intense sales pitch about how much money we'd make selling
Melaleuca ([https://www.melaleuca.com](https://www.melaleuca.com)), a MLM he
was involved with.

My wife was insisting we sign his contracts, because it would be so easy to
recruit only X people (I think it was 3 or 5, I can't quite remember) where X
was the minimum number of recruits needed for you to earn your "passive
income" from their sales.

I had to take her aside, and write a short Python program to show that after
seven generations of recruitment, the entirety of our country would be selling
Melaleuca to each other.

I still bear a grudge against her Dad for targeting us during a very
vulnerable time.

~~~
spacehome
A python program is kind of overkill for this.

~~~
EdwardDiego
It's a very easy Python script to write, and I wanted her to see the numbers
get larger and larger.

------
Outdoorsman
Interesting article...lots of up-votes, but few weighing in... I'll give it a
go...

Money is at stake for one side..a stock has been publicly shorted...

Money, and a "way of life" created, for many, by an organizational structure
(MLM), is at stake for Herbalife, to include it's financial managers,
distributors and customers...

I can only respond by sharing my own personal experiences with MLMs...

I've never been approached by anyone that I suspected was knowingly, or
unknowingly, involved in an MLM-type business that was selling a product I
couldn't live without...and in many cases the "peddlers" had obviously been
coached to tout benefits that I firmly believed didn't exist, or weren't
possible...

This to include lotions, juices, air purifiers, supplements, etc...you name
it...

In this specific case I can say the same...I try to go with the best available
evidence whenever I can...

I've never seen any evidence that a normal healthy person derives significant
benefit from supplements of any kind...vitamins, herbs, juice extracts,
whatever...

I'm wary of "snake oil" to a fault...if you aren't well seek medical
advice...buying something from a salesman is possibly one of the worst things
you can do if you're concerned about your health...spend that money getting
yourself checked out...

The question for me is not whether Herbalife offers any kind of a health
benefit to consumers, or an economic benefit to those involved in it's
distribution network...

The question to be answered is whether or not a "whistle-blower" should
ethically be allowed to profit, substantially, from blowing that whistle...

~~~
dopamean
> The question to be answered is whether or not a "whistle-blower" should
> ethically be allowed to profit, substantially, from blowing that whistle

If they're an external party then I don't think it really matters.

~~~
Outdoorsman
Your comment raises the question: if a substantial profit is involved is a
claimant still "impartial", "neutral", "unbiased"...?

Or, "external" to the proceedings, as your choice of terms suggests...?

I don't have the answer....still thinking about this one!

You make a good point...

~~~
ves
The hope is that a company's fate isn't decided by the claimant. Of course the
claimant is biased, that's what would have motivated them to take this
position in the first place.

The ultimate decision should be reached by an unbiased third party or parties,
in this case the FTC / the market.

------
hammock
You have to wonder that something bigger is going on behind the scenes. George
Soros was invested in Herbalife at the time this article was published. In
November he exited his position.

Carl Icahn is an investor in Herbalife. Bill Ackman has been trying to destroy
it.

Are these investment tycoons waging some kind of proxy war against each other?

~~~
JacobAldridge
It certainly came across to me that Icahn and Soros were investing _against_
Ackman, rather than _for_ Herbalife. Moreover, they almost appear to have
'won' \- without further investigation, from this article it sounds like
Icahn's investment gave a stable floor to the stock price (despite several
subsequent sizable fluctuations), and without that Ackman's activism may well
have driven Herbalife much further down.

(I doubt he would have driven it out of business entirely - at some price it
would have become a very juicy acquisition target for private equity.)

------
contingencies
I live in China you do see a lot of Herbalife and Amway stuff here. It's the
oldest trick in the book ... 1.4 billion people with a relative educational
deficit and a huge social pressure to get rich quick ... a social system
favoring small transactions among friends and family ... widespread
appreciation of 'foreign' products as status items ... a fertile recruiting
grounds for MLMs. Circa 2005 I went for a blind massage and the masseur began
with "The American Amway company..."

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musesum
Funny, from this page: [http://catalog.herbalife.com/Catalog/en-US/Core-
Products/Cor...](http://catalog.herbalife.com/Catalog/en-US/Core-
Products/Core-Products/Formula-1-Healthy-Meal-Nutritional-Shake-Mix)

I click on "BBB Accredited Business" link which leads to a BBB page that
states: "THIS BUSINESS IS NOT BBB ACCREDITED"

I click on the "Direct Selling Association" Link, which brings up a 404.

~~~
JacobAldridge
I'm guessing the people who do your level of research probably aren't the
target market for Herbalife distributors.

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carbonatedmilk
John Hempton, who is mentioned in the article, has an awesome, frank blog at
[http://brontecapital.blogspot.com](http://brontecapital.blogspot.com). Of
course he's often 'talking his book', but he's always well researched and (I
think) surprisingly open for a hedge fund manager about what he's thinking.

------
JacobAldridge
It sounds to me like Ackman has made the right bet, just ten years too late. I
remember researching Herbalife a lot back in 2002, off the back of these
excellent articles by Rob Cockerham [1], and it definitely appeared as immoral
as the Amway businesses I'd researched at the time as well.

I don't fully 'believe' the figures presented by Herbalife in this report,
about returns, purchasers from outside the network etc. BUT it certainly seems
that the business model and culture has dramatically shifted under Michael
Johnson.

Had Ackman shorted this in 2002 not 2012 [2], I suspect his accusations would
have stuck and he may well have prompted the FTC to improve their MLM
guidelines. He may ultimately do us all a _disservice_ by making all anti-MLM
activists appear to be arrogant and greedy.

[1]
[http://www.cockeyed.com/workfromhome/workfromhome.html](http://www.cockeyed.com/workfromhome/workfromhome.html)

[2] Which wasn't an option, because 1) it was privately held at that time (or
thereabouts), and 2) Ackman was recovering from his previous fund's collapse.

~~~
MaysonL
Go read John Hempton's articles on Bronte Capital's website. For example:

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

------
ryporter
The question posed by this article is unfair, because it labels Ackman as a
regulator. He has absolutely no regulatory authority, and if you want to claim
that his money allows him to act as one, then what of all of the money put
behind Herbalife by billionaire investors? Are they regulators propping up a
company?

There was an investigation into Herbalife because there are legitimate
questions about its business practices that Ackman drew attention to through
his research. If he were a regulator, then his massive bet would have fared
far better than it has.

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mixmastamyk
Weird situation. Being from southern California, I've been asked to join
Herbalife a few times but each time turned it down since it wasn't a good fit
for me (I'm not interested in sales).

However the people and company were always straight-forward about how it
worked, so I never felt they were "shady" as the guy in the article accuses.
On the other hand, I didn't know what to make of it completely.

~~~
tim333
I think Ackman would argue it's only the top management and insiders who are
shady, and only they who make significant money.

------
kriro
It's an interesting saga. I haven't researched it much so here's my gut take
from reading the story and remembering earlier discussions...

(Sadly) I think supplements and questionable weight loss products are a real
market and will be bought in the future even without any scientific backing.
Which makes me weary of Ackman's bet. It seems like Herbalife has actually
changed stuff quite a bit and could very well just be selling to people if
they changed distribution to direct sales. They are selling snakeoil (imo) but
they still seem to sell to real consumers at the end of the line and don't
stock stuff in warehouses.

Since this is the crux of the argument from my point of view I wonder why he
didn't conduct any large sample survey before mounting the attack. It seems
like a good step 0 to gather data on one of your major arguments but in
fact...

""" “Surveys are notoriously unreliable,” he responds. There’s no substitute
for seeing the distributors’ actual retail records, he insists. """

That doesn't sound convincing at all.

------
PakG1
If I had the money of Ackman, I'm not sure I'd spend it for the purpose of
destroying a company, even if I was sure it was fraudulent. There are so many
ways it can go sideways, and a hundred more could rise in its place too, so
what's the point besides the quick profit? Yeah, it's all about money, but the
bigger picture would frighten me.

As a private party, I'm not a regulator. I'm not the authorities. I'm not
going to go play financial Batman just because I think the normal authorities
aren't getting it done. I'll raise noise about the issue if I really care
about it, sure. I'll testify findings in court. But bet money on it? The
optics look horrible. All my ideas and findings suddenly become suspect and
the question is whether I care about what's right or about making money at the
expense of what I perceive to be weak targets.

Let me make money in ways where my approach is above reproach and I'm not
questioned about my motives. Why put my efforts and money towards something
where I could get my name tarnished?

Or Ackman doesn't think this way because he's one of the so-called masters of
the universe and his resulting ego has put him on another level?

~~~
spacehome
Ackman is trying to make more money. If he does good in destroying a bad
company all the better, but that's not his primary mission.

------
gesman
Companies engaging in MLM strategies often offers superior quality, beneficial
products. I personally use one on occasions just because I know it works
really well for what I need.

However MLM as a marketing strategy especially sprinkled with "business
opportunity" hype is as close to scam as it can be without crossing the
barrier.

Tons of people are misleaded into false expectations of making living just by
finding candidates and signing them up.

While I see mr. Ackman's efforts nothing more than ego- [and possibly boredom]
driven personal quest, the MLM industry needs to be forced into full and very
clear disclosure of "business opportunity" fragment. These promises are
clearly misleading and grossly overhyped.

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tluyben2
I built a large social networking mlm for a client. The coding was fun but it
left me feeling bad. It is catching people when they are desperate. I do not
really believe in limiting a lot by law but people cannot protect themselves
when they are down.

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sreenadh
I want to ask another question. I have tried Herbalife and I feel that the
product is but I do not like their MLM system.

Is there any product like herbalife but without the MLM part.

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simplexion
_Is he right about Herbalife being a pyramid scheme?_

Is this really a question requiring an answer?

~~~
tim333
Yup, various court cases depend on it.

It was ruled that it was one
[http://mynewsla.com/business/2015/05/15/15m-settlement-
appro...](http://mynewsla.com/business/2015/05/15/15m-settlement-approved-in-
herbalife-pyramid-scheme-lawsuit/)

then that it wasn't [http://www.reuters.com/article/us-herbalife-lawsuit-
idUSKCN0...](http://www.reuters.com/article/us-herbalife-lawsuit-
idUSKCN0Q321B20150729)

