Despite the Herbalife PR machine churning out news of sports
sponsorships and the hiring of new executive staff, along with the theatrics
that continue to be played out in Wall Street, a storm has been brewing between
Herbalife and consumer groups in the US.
At the forefront of these groups are those who charge
themselves with watching over the Hispanic population in America, a core market
central to the ongoing expansion and success of Herbalife there.
Back in 2007 Herbalife revealed that the national Hispanic
market contributed to 61% of their US business. What that percentage is today
isn’t clear, however it’s clear that a vast majority of the company’s current
operations and marketing targets Hispanics (the sponsoring famous soccer stars
for example).
As of late this has caught the attention of Hispanic
consumer groups and politicians who represent large proportions of Hispanic
constituents. All of which express concern over Herbalife’s targeting of the
Hispanic community. Back in May the Hispanic Federation write to the FTC and
‘requesting that the regulator investigate Herbalife, a multi-level marketing
firm that sells nutrition products‘.
This was then followed up in June by a letter to the FTC
from congresswoman Linda Sanchez, who noted concern over “allegations” that
Herbalife ‘victimizes our country’s most vulnerable populations‘ and that
‘independent distributors are compensated more for recruiting new distributors
than for sales‘.
Around the same time we also had New York City councilwoman
Julissa Ferreras sent her own letter to the FTC expressing concerns.
Ferreras, ‘a Democrat who represents a heavily Hispanic
district in Queens’, wrote I am
writing to urge the Federal Trade Commission (FTC) to take a look into
Herbalife. Herbalife has been accused of operating an abusive pyramid scheme
that targets minority groups, especially Latinos, and falsely promises large
profits.
As a Council Member
in a heavily Hispanic district in Queens, I am especially concerned about the
impact this company is having on my constituents and the Latino community in
New York. Latinos in my district, and
across the country, are falling prey to Herbalife’s targeted recruitment.
Recruitment begins
when victims are asked to join alleged nutrition and wellness clubs. In my
district alone, there are dozens of such clubs. Herbalife representatives use
these clubs to take advantage of people with little or no business experience. By making false promises of profit and
ignoring all associated risk, Herbalife representatives “recruit” club members
into becoming distributors of Herbalife products.
Since Herbalife’s
success depends on this aggressive recruitment, new distributors are then
pressured into recruiting additional members. Latinos and others in my district are being
unnecessarily harmed by these aggressive recruitment techniques. By promising
large profits and minimal work, Herbalife preys on vulnerable immigrant
communities. Since the evidence of consumer harm is widespread in my district
and across the country, I believe it is critical for the FTC to conduct a
thorough investigation and protect consumers from these malicious recruitment
tactics and false promises. If Herbalife is acting illegally by making false
income claims to vulnerable Latinos in my community, then they need to be held
responsible.
To date, Herbalife’s response to criticism (largely
attributed to Bill Ackman’s efforts) has pretty much been “haha you don’t can’t
prove anything, (insert carefully prepared PR dept spiel). Nyah nyah nyah!”.
In what appeared to be a genuine effort at transparency and
addressing the issue of retail revenue, back in February Herbalife announced
that they would more clearly identify the wholesale customers among its 3.2
million distributors from April.
April came and went however and to date, Herbalife has yet
to release any data. Given the Herbalife compensation plan fails to make any
differentiation between wholesale customers and distributors who don’t recruit,
it was expected that the company would introduce a proper wholesale customer
option for consumers.
This is important because Herbalife currently claim
distributors who don’t recruit are wholesale customers, which they clearly
aren’t if they have signed up as distributors and are able to earn commissions
via the compensation plan.
For reasons only known to them, Herbalife has continued to
stall and despite repeated promises, have failed to take any action on the
wholesale customer issue. The company did tout a Nielsen poll in June which it
claimed clarified the matter, however all it really did was misdirect attention
away from it. Herbalife refused to make public the statistical data behind the
survey results, only making public a select few concluding statements they
issued.
These letters to the FTC from Hispanic consumer groups and
politicians representing large Hispanic communities though? That’s an entirely
different kettle of fish.
Pushing the panic button and no doubt terrified that more
members of the Congressional Hispanic Caucus would pen letters to the FTC,
Herbalife CEO Michael Johnson (right) personally flew into ‘Washington to stop
them‘.
After Johnson learned
that Loretta Sanchez was planning to circulate a letter to be signed by other
caucus members, the 58-year-old executive flew across the country to try to
dissuade her.
Johnson told caucus members that Herbalife products help
combat obesity among Hispanics and that selling Herbalife is a great business
opportunity. Johnson also said if the company were shut down people would be
stuck with product they could not sell.
Johnson’s House call appears to have been in vain, other
caucus members are still planning to follow the lead of colleague Linda Sanchez
(D-Calif.), who last month wrote a letter to the Federal Trade Commission
asking it to investigate whether Johnson’s Los Angeles nutritional supplements
company was a pyramid scheme — and one that hurt her Hispanic constituents, a
source inside the caucus told The Post.
Caucus Chairman Ruben
Hinijosa (D-Texas) and Rep. Loretta Sanchez (D-Calif.), Linda’s sister, are two
who have grown concerned about Herbalife, the source said. The caucus insider said he was not impressed
with Herbalife’s arguments. “They claim that Ackman is manipulating facts, but
we are never shown facts that support what they are saying,” he said.
One would think that if Herbalife’s business practices were
above board, the company would of course welcome scrutiny from the FTC, however
that doesn’t appear to be the case.
Things will now no doubt get even more panicky over at
Herbalife, after news broke yesterday that the FTC has agreed to meet with
those that have written to them these past few months.
Consumer advocates are planning to ask regulators on Monday
for their commitment to investigate allegations that Herbalife is a pyramid
scheme.
The National Consumers League — the first group to call for
an investigation in a March 12 letter — asked for the meeting with the Federal
Trade Commission, according to sources. The Hispanic Federation, the League of
United Latin American Citizens (LULAC) and Consumer Action are also expected to
attend.
The activists are set to meet with Lois Greisman, the FTC’s
head of consumer fraud. Jessica Rich, the new director of the Bureau of
Consumer Protection, may also be there.
At least six
different letters have been sent to the FTC asking it to probe Herbalife’s
practices.
Should Herbalife be
worried?
“I’m mad,” said
LULAC’s National Executive Director Brent Wilkes. “I’ve seen Latinos ripped off
by banks and others, but this scheme really takes the cake.”
After talking with
Herbalife “and not getting the answers I wanted to hear, I concluded they are
defrauding upwards of 300,000 Latinos a year,” he said.
Another consumer
activist planning to attend the meeting said, “We think the problem is getting
worse, and we think that the FTC is really important.”
If the above tone is anything to go by it would certainly
seem so. But perhaps not…
Several sources told
The Post that they believe the FTC is reluctant to launch an investigation of
Herbalife because of the company’s financial resources and legal firepower.
Herbalife – the MLM industry example of “too big to fail”?
Guess we’ll have to wait and see what goes down Monday.
Perhaps Johnson can gatecrash the party and reveal those Herbalife wholesale
customer figures he’s been keeping under guarded lock and key…
