7 ms·

The Siege of Herbalife (2015)

135 points by todayiamme 11y ago

simplexion 11y ago
Is he right about Herbalife being a pyramid scheme? Is this really a question requiring an answer?
- tim333 11y ago
  Yup, various court cases depend on it. It was ruled that it was one http://mynewsla.com/business/2015/05/15/15m-settlement-approved-in-herbalife-pyramid-scheme-lawsuit/ http://mynewsla.com/business/2015/05/15/15m-settlement-appro... then that it wasn't http://www.reuters.com/article/us-herbalife-lawsuit-idUSKCN0Q321B20150729 http://www.reuters.com/article/us-herbalife-lawsuit-idUSKCN0...
Outdoorsman 11y ago
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 11y ago
  > 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 11y ago
    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 11y ago
      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.
  - marincounty 11y ago
    I didn't know Bill Ackerman, or his fund, before this battle. While I agree with Ackerman completely, I think at this point, he should take his short position off the table. Bring down Herbalife down for moral reasons. We need morality. I didn't know Ackerman was only 49. I thought he was much older. I think Ackerman might have a political future, if he desires politics? Maybe, he just doesn't care about how that short looks. I thought it looked o.k., until today. I'm not a fan of financial activism. Positive, or negative activism. I am so tired of the poor/naieve being exploited. This financial activism is not going away; it's just getting started. (Suprised George Sorrows was in this mess. He one of the rich boys I actually like. He's be of the few rich boys who tells the truth. He once said, while being interviewed on his yacht, 'I owe all of my success to my father, and his fortune. I would be a nobody--if it wasen't for his money, and guidance.')
- barney54 11y ago
ryporter 11y ago
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.
randycupertino 11y ago
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 11y ago
  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 11y ago
    A python program is kind of overkill for this.
    - feelix 11y ago
      that really depends on how you're showing the data. if you wanted to make it visual then a python program could be ideal.
    - EdwardDiego 11y ago
      It's a very easy Python script to write, and I wanted her to see the numbers get larger and larger.
  - deleted 11y ago
hammock 11y ago
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 11y ago
  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.)
musesum 11y ago
Funny, from this page: http://catalog.herbalife.com/Catalog/en-US/Core-Products/Core-Products/Formula-1-Healthy-Meal-Nutritional-Shake-Mix http://catalog.herbalife.com/Catalog/en-US/Core-Products/Cor... 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.
- musesum 11y ago
  Followup: Looks like Herbalife changed BBB link, which now goes to front page. Searching on "Herbalife" on that front page now goes to a list of 205 businesses, which are not "BBB Accredited".
- JacobAldridge 11y ago
  I'm guessing the people who do your level of research probably aren't the target market for Herbalife distributors.
- nsxwolf 11y ago
  The DSA is very real[1] - they must have had a bad link. "Direct Sales" is the euphemism we in the business prefer to "MLM". We don't say MLM very often, and we never ever ever never ever say the P word. [1] http://www.dsa.org http://www.dsa.org
carbonatedmilk 11y ago
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.
mixmastamyk 11y ago
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 11y ago
  I think Ackman would argue it's only the top management and insiders who are shady, and only they who make significant money.
JacobAldridge 11y ago
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 11y ago
  Go read John Hempton's articles on Bronte Capital's website. For example: http://brontecapital.blogspot.com/2015/06/herbalife-very-long-post.html http://brontecapital.blogspot.com/2015/06/herbalife-very-lon...
- spacehome 11y ago
  He might have been 5 too late, instead. Herbalife's business model depends on getting new suckers into the mix. Herbalife is now branching out into essentially 3rd world countries, because the market is drying up for them in the developed world. Eventually (I hope) the whole thing will come crashing down, even without FTC intervention. Timing it is difficult, though, and even if Ackman is right, he can still lose money if he calls it too early.
PakG1 11y ago
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 11y ago
  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.
contingencies 11y ago
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..."
sreenadh 11y ago
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.
tluyben2 11y ago
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.
gesman 11y ago
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.
kriro 11y ago
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.

135 points by todayiamme 11y ago

simplexion 11y ago

Is he right about Herbalife being a pyramid scheme? Is this really a question requiring an answer?

tim333 11y ago
Yup, various court cases depend on it. It was ruled that it was one http://mynewsla.com/business/2015/05/15/15m-settlement-approved-in-herbalife-pyramid-scheme-lawsuit/ http://mynewsla.com/business/2015/05/15/15m-settlement-appro... then that it wasn't http://www.reuters.com/article/us-herbalife-lawsuit-idUSKCN0Q321B20150729 http://www.reuters.com/article/us-herbalife-lawsuit-idUSKCN0...

Outdoorsman 11y ago

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 11y ago
> 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 11y ago
  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 11y ago
    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.
- marincounty 11y ago
  I didn't know Bill Ackerman, or his fund, before this battle. While I agree with Ackerman completely, I think at this point, he should take his short position off the table. Bring down Herbalife down for moral reasons. We need morality. I didn't know Ackerman was only 49. I thought he was much older. I think Ackerman might have a political future, if he desires politics? Maybe, he just doesn't care about how that short looks. I thought it looked o.k., until today. I'm not a fan of financial activism. Positive, or negative activism. I am so tired of the poor/naieve being exploited. This financial activism is not going away; it's just getting started. (Suprised George Sorrows was in this mess. He one of the rich boys I actually like. He's be of the few rich boys who tells the truth. He once said, while being interviewed on his yacht, 'I owe all of my success to my father, and his fortune. I would be a nobody--if it wasen't for his money, and guidance.')
barney54 11y ago

ryporter 11y ago

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.

randycupertino 11y ago

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 11y ago
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 11y ago
  A python program is kind of overkill for this.
  - feelix 11y ago
    that really depends on how you're showing the data. if you wanted to make it visual then a python program could be ideal.
  - EdwardDiego 11y ago
    It's a very easy Python script to write, and I wanted her to see the numbers get larger and larger.
- deleted 11y ago

hammock 11y ago

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 11y ago
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.)

musesum 11y ago

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

musesum 11y ago
Followup: Looks like Herbalife changed BBB link, which now goes to front page. Searching on "Herbalife" on that front page now goes to a list of 205 businesses, which are not "BBB Accredited".
JacobAldridge 11y ago
I'm guessing the people who do your level of research probably aren't the target market for Herbalife distributors.
nsxwolf 11y ago
The DSA is very real[1] - they must have had a bad link. "Direct Sales" is the euphemism we in the business prefer to "MLM". We don't say MLM very often, and we never ever ever never ever say the P word. [1] http://www.dsa.org http://www.dsa.org

carbonatedmilk 11y ago

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.

mixmastamyk 11y ago

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 11y ago
I think Ackman would argue it's only the top management and insiders who are shady, and only they who make significant money.

JacobAldridge 11y ago

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 11y ago
Go read John Hempton's articles on Bronte Capital's website. For example: http://brontecapital.blogspot.com/2015/06/herbalife-very-long-post.html http://brontecapital.blogspot.com/2015/06/herbalife-very-lon...
spacehome 11y ago
He might have been 5 too late, instead. Herbalife's business model depends on getting new suckers into the mix. Herbalife is now branching out into essentially 3rd world countries, because the market is drying up for them in the developed world. Eventually (I hope) the whole thing will come crashing down, even without FTC intervention. Timing it is difficult, though, and even if Ackman is right, he can still lose money if he calls it too early.

PakG1 11y ago

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 11y ago
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.

contingencies 11y ago

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..."

sreenadh 11y ago

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.

tluyben2 11y ago

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.

gesman 11y ago

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.

kriro 11y ago

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.