Sunday, 21 December 2014
Wednesday, 17 December 2014
|Julia La Roche|
Today, a (usually-polite) financial journalist (who wishes to remain anonymous) sent me links to 'Business Insider' articles by Julia La Roche, along with a not-unreasonable question:
'How the fuck has the FTC allowed Herbalife?'
I replied that: Unfortunately, the same question applies to the entire 'MLM Income Opportunity' fairy story.
David Brear (copyright 2014)
Bill Ackman, who runs Pershing Square Capital, has released an internal Herbalife video from 2005 that he says shows a top distributor talking about deceptive recruiting practices.
According to Pershing Square, the video is from a 2005 meeting of distributors and management in Anaheim, California.
The video shows the meeting's keynote speaker Stephan P. Gratziani, a former US national cyclist who is now an Herbalife Chairman's Club Member.
"The Herbalife business model, at this point in time, is not based on customers purchasing, it‘s based on distributors purchasing volume," Gratziani says.
Here are some of his statements from the video:
"We sell people on a dream business, that they can make it. Yet deep down inside, what do we really know? Yeah. We know that the reality is that most of them aren‘t going to make it." (Video 1, 1:00:16.)
"Who wants to bring their family into a struggle to make it? Who wants to bring their family into an eventual deception?" (Video 2, 7:20.)
"We tell people, hey, you know, sign on the dotted line, you know, start working from home, it‘s going to be unbelievable, you‘re going to have this incredible life. . . . So there really is this situation or this level of inauthenticity that‘s there." (Video 2, 8:28.)
"The Herbalife business model is based on distributors purchasing volume from them. . . . The Herbalife business model, at this point in time, is not based on customers purchasing, it‘s based on distributors purchasing volume." (Video 2, 14:34.)
"These sixty thousand people [whom the speaker lost as distributors over the preceding five years], primarily, why do you think they came into the business? Primarily? Primarily? Opportunity! Money! Right?" (Video 1, 46:05.
"[S]uccessful people in retailing in our business, it‘s a very small percentage. (Video 2, 28:08.)
"The majority of our people have a difficulty in selling products, in general." (Video 2, 29:46.)
"‘Fake it ‗til you make it.‘ Some of us got so good at faking it, we
forgot to make it!" (Video 1, 54:04.)
forgot to make it!" (Video 1, 54:04.)
Ackman, who runs Pershing Square Capital, has been publicly shorting Herbalife for two years. He believes the company operates as a "pyramid scheme."
Shares of Herbalife were last trading down 2.5%.
Read more: http://uk.businessinsider.com/video-of-herbalife-distributor-gratziani-2014-12#ixzz3MCH08vCE
Hedge-fund manager Bill Ackman of Pershing Square was just on Bloomberg TV's "Market Makers," talking about his infamous Herbalife short.
"We've actually come up with some new stuff," Ackman said before showing a clip of an internal Herbalife video from 2005 he says shows deceptive recruiting practices.
According to Ackman, the video shows one of Herbalife's top distributors speaking, and it makes the company look pretty bad. It's a three-hour long presentation (you can watch a short clip below).
Perhaps that's fitting for a crusade that's lasted two years, like Ackman's crusade against Herbalife has.
In December 2012, Ackman gave a 342-slide presentation publicly declaring that he was short $1 billion worth of Herbalife shares. Ackman believes that the company operates as a pyramid scheme that targets poor people, especially those from the Hispanic population.
His investment thesis is predicated on regulators, specifically the Federal Trade Commission, shutting the company down. (The FTC opened an investigation into the company back in March of this year.)
Ackman is shorting the company to $0. He has said that he will take this short to the "end of the earth."
After Ackman's initial presentation, numerous fund managers, most notably Ackman's longtime rival Carl Icahn, piled on by going long the stock.
Herbalife stock also surged in the months that followed. In October 2013, Ackman had to change the form of his short position. He said he covered a big chunk of the short and bought put options. He said this has "increased the potential for profit, but reduced the amount of capital at risk."
The position is about 7% of Pershing's portfolio. At its peak, it was 15%. "But the opportunity for profit is greater than it was at the peak," Ackman said.
It has definitely been a crazy ride up and down for the last two years.
Shares of Herbalife have fallen about 50% this year. It looks like Ackman is back in the money. The stock was last trading down 2.6% during Ackman's interview on Bloomberg.
Ackman said that the risk/reward looks more appealing now. He said the risk of the stock going to $50, $60 or $70 has "gone down enormously." He said he thinks the business is "deteriorating" and there's no longer a bull case for the stock.
This summer, Ackman and Icahn made up after a decade-long rivalry. Icahn has said he hasn't sold a single share.
Ackman told Bloomberg he has not had a recent conversation with Icahn.
"Unfortunately, I think he's kind of stuck," he said, pointing out that Icahn is on the board of Herbalife and can't sell.
Still, Ackman said, "I'd love to see him sell. I think it would be great to see him sell ... I think he's a stuck holder."
He said Icahn would be fine, though.
JULIA LA ROCHE
JULIA LA ROCHE
Here's the new video:
Friday, 28 November 2014
According to the pernicious Utopian fairy story entitled 'Herbalife' (which Michael Johnson and his criminal associates continue to peddle as total reality), 'Herbalife's founder,' Mark Reynolds Hughes (1956-2000), was a great 'Visionary' - an exemplary human being and 'philanthropic businessman' - an ordinary guy who (starting with virtually nothing), overcame adversity to 'achieve his dreams and goals,' and whose only purpose in life was to 'help others to achieve their own dreams and goals.'
In the adult world of quantifiable reality, Mark Hughes was an 'MLM income opportunity' racketeer - a good-looking, well-groomed, well-tanned and well-rehearsed (but otherwise-mediocre) little charlatan who amassed a vast fortune unlawfully - seducing, cheating and silencing an endless-chain of victims by steadfastly pretending moral and intellectual authority. Mark Hughes undoubtedly suffered from severe and inflexible Narcissistic Personality Disorder (NPD), but as a teenager, his addiction to alcohol and drugs, had brought him into contact with a blame-the victim cultic racket known as 'CEDU' (pronounced 'see do') - a spin-off of 'Synanon' a.k.a. 'The Church of Synanon.'
In 1974, aged 18, Hughes was a full-time (non-salaried) shill for the 'CEDU' racket. i.e. For a small cut (allegedly 5%), he targeted affluent individuals in California; gathering 'donations' for his masters by pretending that he was the living proof that 'CEDU' was able to transform losers into winners. Throughout the 1970s, Hughes (who looked the part and was a confident performer) acted essentially the same role for various fly-by-night 'MLM income opportunity' racketeers. They were hiding their criminal enterprise behind claims to be selling 'dietary products' (i.e. effectively unsaleable pseudo-medical wampum). Finally, in 1980, aged 24, Hughes instigated his own slightly more-sustainable, copy-cat 'MLM' racket which he labelled 'Herbalife.'
Twenty years, and 4 (former Beauty Queen) trophy wives, later, Hughes had been allowed to sell effectively-valueless shares in 'Herbalife' on Wall St. He was now a $ multi-millionaire, but behind the kitsch rags to riches fairy story, he remained chronically addicted to alcohol and prescription drugs. At this time, had the truth about Hughes precarious mental and physical state become public knowledge, then his entire racket (which was built on his own fake iconic status) would probably have collapsed. However, Hughes was then found dead in highly-suspicious circumstances (apparently from an accidental, alcohol-laced overdose of anti-depressants). Thus, a new generation of 'Herbalife' bosses was able to maintain the instigator's monopoly of information; allowing Hughes' absurd racket to expand to billion-dollar proportions (right under the noses of regulators, journalists, law enforcement agents, etc.).
Classically, the co-ordinated, devious techniques of social, psychological and physical persuasion which Mark Hughes, and his successors, employed to instigate, and maintain, the 'Herbalife' racket, are neither original nor unique. The great weakness of all totalistic cults, is that, once you know how they function by deceiving their adherents into accepting a Utopian fiction as fact, the inflexible reality-inverting reactions of these groups to any challenge to their authenticity, can be predicted with almost 100% accuracy. It should also be remembered, that both the leaders and core-adherents of cults are dissociated from external reality, and that the unquestioning obedience of the core-adherents to their group's controlling-fiction only serves to confirm, and magnify, the leaders' existing delusions of grandeur.
'The purpose of Newspeak was not only to provide a medium of expression for the world-view and mental habits proper to the devotees of Ingsoc, but to make all other modes of thought impossible. It was intended that when Newspeak had been adopted once and for all and Oldspeak forgotten, a heretical thought - that is, a thought diverging from the principles of Ingsoc - should be literally unthinkable, at least so far as thought is dependent on words. Its vocabulary was so constructed as to give exact and often very subtle expression to every meaning that a Party member could properly wish to express, while excluding all other meanings and also the possibility of arriving at them by indirect methods. This was done partly by the invention of new words, but chiefly by eliminating undesirable words and by stripping such words as remained of unorthodox meanings, and so far as possible of all secondary meanings whatever.'
Georges Orwell (Appendix to 'Nineteen Eighty-Four')
The purpose of 'MLM Income Opportunity' jargon is not only to provide a medium of expression for the unquestioning world-view and mental habits proper to the core-adherents of 'MLM' groups, but to make all other critical and evaluative modes of thought impossible. It is intended that when 'MLM Income Opportunity' jargon has been adopted once and for all and traditional language forgotten, a heretical thought - that is, a thought diverging from the 'positive' principles of 'MLM' - should be literally unthinkable, at least so far as thought is dependent on words. Its vocabulary is so constructed as to give exact and often very subtle expression to every 'positive' meaning that an 'MLM Distributor' can properly wish to express, while excluding all other 'negative' meanings and also the possibility of arriving at them by indirect methods. This is done partly by the invention of new 'positive' words and phrases ('Herbalife', 'Amway', 'NuSkin', 'Xango', 'Multi-Level Marketing', 'Distributor' , Independent Business Owner,'), but chiefly by eliminating undesirable 'negative' words and phrases ('cult', 'totalitarian', 'fraud', 'deception', 'brainwashing', 'victims', 'exploitation' , 'de facto slaves') and by stripping such words and phrases as remain of unorthodox meanings, and so far as possible of all secondary meanings whatever.
‘Narcissistic Personality Disorder,’ is a psychological term first used in 1971 by Dr. Heinz Kohut (1913-1981). It was recognised as the name for a form of pathological narcissism in ‘The Diagnostic and Statistical Manual of Mental Disorders 1980.’ Narcissistic traits (where a person talks highly of himself/herself to eliminate feelings of worthlessness) are common in, and considered ‘normal’ to, human psychological development. When these traits become accentuated by a failure of the social environment and persist into adulthood, they can intensify to the level of a severe mental disorder. Severe and inflexible NPD is thought to effect less than 1% of the general adult population. It occurs more frequently in men than women. In simple terms, NPD is reality-denying, total self-worship born of its sufferers’ unconscious belief that they are flawed in a way that makes them fundamentally unacceptable to others. In order to shield themselves from the intolerable rejection and isolation which they unconsciously believe would follow if others recognised their defective nature, NPD sufferers go to almost any lengths to control others’ view of, and behaviour towards, them. NPD sufferers often choose partners, and raise children, who exhibit ‘co-narcissism’ (a co-dependent personality disorder like co-alcoholism). Co-narcissists organize themselves around the needs of others (to whom they feel responsible), they accept blame easily, are eager to please, defer to others’ opinions and fear being seen as selfish if they act assertively. NPD was observed, and apparently well-understood, in ancient times. Self-evidently, the term, ‘narcissism,’ comes from the allegorical myth of Narcissus, the beautiful Greek youth who falls in love with his own reflection.
Currently, NPD has nine recognised diagnostic criteria (five of which are required for a diagnosis):
- has a grandiose sense of self-importance.
- is preoccupied with fantasies of unlimited success, power, brilliance, beauty, ideal love, etc.
- believes that he/she is special and unique and can only be understood by other special people.
- requires excessive admiration.
- strong sense of self-entitlement.
- takes advantage of others to achieve his/her own ends.
- lacks empathy.
- is often envious or believes that others are envious of him/her.
- arrogant disposition.
David Brear (copyright 2014)
Death and Denial at Herbalife
The Untold Story of Mark Hughes' public image, Secret Vice and Tragic Destiny
Los Angeles Times/February 18, 2001
By Matthew Heller
There's a star on the stage of the Great Western Forum. Immaculately dressed as always, 6-foot-1, tanned, not a hair out of place, he is a veteran of such very public appearances. In seminar after seminar, convention after convention, he has captivated thousands of people around the world with his charisma, sincerity and enthusiasm.
But this appearance, on Feb. 19, 2000, is something special for Mark Reynolds Hughes. It's part of a five-day celebration of the 20th anniversary of Herbalife International, the company he started in a former Beverly Hills wig factory. There is a lot to celebrate. At 44, Hughes is the ruler of a $956-million business empire that sells weight-management and personal-care products through a network of more than 1 million distributors in 50 countries.
So-called multilevel or network marketers are lucky to stay in business for several years. Hughes has racked up 20--and become extremely rich in the process. In the preceding fiscal year, he earned more than $2 million in salary and bonuses; he controls 60% of Herbalife stock, worth about $250 million, and has interests in suppliers of the company's products. In 1998, he collected a tidy $43 million in a leveraged buyout of one manufacturer. He owns homes in Beverly Hills, Malibu and Maui, and is planning to build a veritable San Simeon on a mountaintop above Benedict Canyon.
From the Forum stage, Hughes looks out on an audience of acolytes, about 4,000 Herbalife distributors who have followed his prescription for health and wealth with almost messianic fervor. To them, he is the manifestation of how a flair for salesmanship, hard work and a belief in your product can make just about anyone a millionaire. Like his followers, he sports one of the ubiquitous "Lose Weight Now, Ask Me How" badges--the slogan that also adorns telephone poles and car bumpers everywhere. "The dream he had has helped so many people like me," says Paco Perez, a distributor who was a hotel bellboy when he first met Hughes.
The faithful focus their attention as the Forum Diamondvision displays a video montage of highlights from Hughes' past, from the early days of selling a protein powder out of his car trunk to his current status as chairman and chief executive of a multinational corporation headquartered in a Century City high-rise.
There, on screen, is Hughes crying at Herbalife's fourth anniversary rally--"I can't believe what's happened with all of this," he sobs--hobnobbing with the likes of Milton Berle and Merv Griffin, handing out $1-million bonus checks to distributors, globe-trotting in the company's private jet, promising to "take Herbalife around the entire world."
On the Forum stage, moved by the nostalgia, Hughes again allows a tear or two to roll onto his cheeks. "I will never forget that moment," recalls Perez. "It was emotional for him and me."
Three months later, on May 21, Mark Hughes is lying on the four-poster bed in the master bedroom suite of his beach retreat, a Mediterranean-style mansion on 71/2 acres with 300 feet of Pacific Ocean shoreline that he recently bought for a Malibu-record $25 million.
It is late in the morning after another celebration. The 87th birthday party for Hughes' beloved maternal grandmother, Hazel, known affectionately as Mimi, had been a private affair, just a few family members joining him at home for the evening. Out of the public limelight, Hughes drank white wine, smoked a cigar and played his drum set, protected by security gates, round-the-clock guards and surveillance cameras.
From an adjoining part of the suite, Darcy LaPier Hughes--his fourth wife and, like her three predecessors, a former beauty queen--enters the master bedroom. Her husband's back is facing her. He is wearing only a black T-shirt and black bikini briefs. Something about him doesn't look right. Darcy calls the guards, who realize something is very wrong. They carry him to the floor and lay him on his back to perform CPR. Unsuccessfully.
The Los Angeles County coroner's office concludes he died of a toxic combination of alcohol and Doxepin, an antidepressant he was taking to help him sleep. His blood-alcohol level was measured at 0.21, more than 2 1/2 times the legal limit for driving.
The death was ruled an accident, an eerie echo of the ruling on the drug-related death of Hughes' mother 25 years earlier. Hundreds of mourners grieved the loss of a man struck down in his prime who had helped so many get so rich.
But the real story is even sadder, the tale of a troubled man who grew up amid discord and drug abuse and, as an adult, turned a mythical video version of his past--the Herbalife story--into his reality. It's also the story of how Mark Hughes, the super-salesman, may have become a prisoner of his public image.
Mark Hughes' version of his life story was a remarkable tale of tragedy, resolve and triumph. He said he grew up underprivileged on the gritty streets of a Latino neighborhood in La Mirada, tucked away in the southeast corner of Los Angeles County. "I was basically brought up by my grandparents," he said on the Herbalife 20th anniversary video, referring to his mother's parents, Lawrence and Hazel Hughes. And according to the myth, his mother, Jo Ann, who lived off welfare, had this weight problem.
"My mom was always going out and trying some kind of funny fad diet as I was growing up," he remembered in a speech to a 1985 Herbalife rally that was reprinted as part of an Inc. magazine article on Hughes. "Eventually she went to the doctor to get some help, and he prescribed to her Dexamyl, kind of a fad diet then. For those of you who don't know about it, it's a drug, a narcotic. It's a form of speed, or amphetamine. You're not able to eat or sleep." (In fact, Dexamyl combines an amphetamine stimulant with a barbiturate depressant to offset the amphetamine's side effects.)
Hughes continued: "After several years of using it, she ended up having to eat sleeping pills for her to sleep at night. And after several years of doing that, her body basically started to deteriorate. And she started seeing four or five doctors to keep her habit up."
Hughes, described by Inc. as "a tanned and blow-dried California swashbuckler resplendent in black tie and diamonds, brown eyes flashing over a perfect, polished smile," then reached the climax of his story, mustering a tear: "I was 19 years old when she died from an overdose."
As recently as November 1999, Hughes repeated a similar story to a trade publication, Network Marketing Lifestyles. He "transformed the tragedy into fuel for a higher purpose," the magazine said, making it his life's ambition to "develop an organization that would put the kind of reliable information and safe, effective products his mother never had into the hands of millions."
The real story was a lot more complex, and fit less neatly into an inspirational parable. Jo Ann Hughes did die of an overdose, and Mark Hughes did spend his first years in La Mirada. But he lived in a new tract home in a neighborhood sprinkled with citrus groves and mostly populated by upwardly mobile white suburbanites. And his mother died addicted to painkillers, not diet drugs.
Hughes was raised by Jo Ann and Stuard Hartman, one of two men who claim to be his biological father. Hartman now lives with his second wife in a modest L-shaped house in Camarillo. The retired businessman is tall and handsome, with a weathered face framed by tufts of white hair. He raised Mark, along with two other boys, Guy and Kirk. Tears sometimes well in his blue eyes as he tells his story, but he keeps his composure, arms crossed over his chest as if to ward off the pain.
He shows off photographs of Mark as a young boy. There he is, skinny, bangs of dark hair falling over his forehead, with a protective arm over the shoulders of each of his younger brothers; in another, he is posed with a softball and plastic bat as Hartman holds Guy and Kirk. A third photograph shows Mark smiling as he sits on a sparkling red bicycle equipped with training wheels. Behind him stands a petite, well-dressed young woman, her hands on her hips. This is Jo Ann, Hughes' mother and Hartman's first wife.
In the early '60s, the family moved to Camarillo, which was being transformed from an agricultural community into a suburban outpost of L.A. They acquired a custom-built ranch-style home, and with Hartman prospering as an entrepreneur--he had started a business supplying aircraft parts to the U.S. government--the boys enjoyed more riches than rags. "They always had the best toys, the best stuff, the best clothes," says Duane Livingston, a close friend of young Mark.
Of the three boys, Mark was the quietest, the least rambunctious, not academically brilliant but with a certain focus and intensity. He looked the most like his mother, sharing her dark hair and complexion.
His Camarillo lifestyle also included a housekeeper and fishing trips to the Channel Islands in Hartman's Chris-Craft Constellation cruiser. His mother drove a gold-colored Cadillac and spent a great deal of time on her wardrobe and appearance. But friends could detect all was not right. For one thing, there was a tension between Hartman and Jo Ann over disciplining the children. "It was always an issue--he was too strict and she wasn't," says Livingston.
Hartman adamantly denies Jo Ann had a weight problem. "This whole story is not true," he insists. But she did have a problem. "She was addicted to pain pills," Hartman says, singling out the popular painkillers Darvon and Percodan, which have never been prescribed for weight loss. "She used them in combination to prolong the high."
In a court declaration filed later as part of their divorce, Hartman alleged that Jo Ann's prescription Percodan habit in the early 1960s cost more than $2,000 a year. Because of her addiction, he said, she neglected her sons, even using money he gave her for groceries to buy drugs. "The children began to complain to me about being hungry," he recalled. And the house in Camarillo was "so filthy dirty it was on the verge of being unsanitary."
After Jo Ann suffered a seizure, she moved back to La Mirada in December 1969 to stay with her parents and be treated by a local doctor. On the pretext of taking 13-year-old Mark to visit his mother, Hartman alleged, Jo Ann's parents moved him from Camarillo into their own home. A few weeks later, Hartman returned home from work to find that Jo Ann had taken Guy, 12, and Kirk, 11, and cleaned out the closets. In February 1970, court documents show she filed for divorce.
The marital breakup could hardly have come at a worse time for Mark, who, according to a childhood friend, already was experimenting with alcohol and drugs. The source, who asked not to be identified, recalls seeing him at a bus stop one morning before school. "He had a gallon of cheap red wine. He was guzzling the wine and eating a handful of [pills]. He was just out of control, completely out of control."
Experts say it wouldn't be surprising if Mark's mother had passed on her addictive streak. "Genetics is the single most important component [of substance abuse], especially when it begins manifesting early on," notes Dr. Joseph S. Haraszti, medical director of Pasadena's Las Encinas Hospital and an expert on addiction. Moreover, he adds, the parent's use of alcohol or drugs as a coping mechanism becomes a model for the child.
In La Mirada, Jo Ann spent days in bed, abdicating almost all parental control. "We ran wild," Kirk Hartman admits. During that same period, Jo Ann was arrested for passing a bad check. Doctors declared her too ill to attend court hearings in the divorce case.
Hartman was awarded custody of Guy and Kirk, the younger boys, in December 1970; Mark remained with Jo Ann. There was no way Hartman could exert any influence over Mark, the two now completely estranged. "He blamed me for breaking up the family," Hartman says with a sigh.
Jo Ann was treated for addiction at the same Lynwood hospital where Mark was born. But on April 27, 1975, her father found her dead in her apartment. According to the autopsy report, several empty vials of prescription drugs were found beside her bed, and her doctor told the coroner she "was known to overingest her prescription drugs." Toxicological tests showed potentially lethal levels of propoxyphene in her system--its brand name is Darvon. Jo Ann Hartman died a drug addict, or, as the coroner put it more delicately, of acute drug intoxication.
Mark, then 19, was not with his mother when she died. Instead, having accumulated several drug busts, he was far away in the San Bernardino Mountains, at an institution that paved the way for his success at Herbalife.
CEDU, as the drug institute is called, was the brainchild of Mel Wasserman, a Palm Springs furniture store owner who had sponsored recovering addicts at Synanon, a drug rehab program, at its facility in Santa Monica. In the late '60s, as Synanon developed cult-like trappings, Wasserman founded his own center for troubled teens in bucolic Running Springs, west of Big Bear. Its goals included liberating the "spirit of the child" and creating "a safe and healthy environment for making new choices." Wasserman eschewed Synanon's confrontational approach to therapy.
"We were building character by instilling a strong work ethic," says Michael Rosen, a former CEDU staff member. "You would see what you were like through the eyes of other people. You really got strong feedback on how the world perceived you."
Rosen met Mark Hartman when the boy had been at CEDU for about six months. "He was the sweetest kid I ever met, but he had no skills," he recalls. "He was not sophisticated in any way." His style of dress was T-shirt and jeans. But Mark was interested in the fund-raising program that Rosen had started to supplement CEDU's meager public subsidies. He accompanied other CEDU students on fund- raising trips to upscale Southern California communities, dressed in a suit and armed with his pitch.
"You say, 'I have a story,' " Rosen explains. "You talk about who you are, who you've become. You try to inspire others. It would be no different at CEDU or Herbalife."
On one trip to Beverly Hills, Mark inspired Ronald Reagan, who had recently completed his second term as governor of California, to part with $500. On a visit to a Beverly Hills lawyer's office, he got a rude reception. "The lawyer grabbed him by the collar, threw him out the door, and said, 'I don't see anyone without an appointment,' " says former Herbalife corporate counsel Perry Turner. Undaunted, Mark found a pay phone in the lobby of the building and made an appointment. The lawyer, admiring his chutzpah, duly opened his wallet.
Mark had found his calling as a salesman. "He could project his energy and feelings tremendously," says Rosen. "He was a star at it." Such a star, in fact, that he stayed on for a while as a staff member at CEDU after turning 18.
Like the other students, Mark was allowed to keep 5% of the money he raised. When he left CEDU, he was eager to apply his new skills and add to his bank balance. "I asked him, 'What did the program do?' " recalls friend Duane Livingston. "He said, 'They help you realize your goals. My big goal is I always wanted to be rich.' "
In 1976, Mark began selling Slender Now diet products for Seyforth Laboratories, a multilevel marketer, becoming one of its top 100 earners. After Seyforth collapsed in 1979, he sold exercise equipment and weight-control products for Golden Youth, another direct-sales outfit. By the time Golden Youth, too, went out of business, Mark was ready to start his own operation that would combine the Eastern philosophy of herbal medicine with the vitamin and mineral technology of the West. With Slender Now manufacturer Richard Marconi, he developed a line of products that promised "100% Satisfaction Guaranteed or Your Money Back." In February 1980, the 24-year-old entrepreneur--now Mark Reynolds Hughes, having taken his mother's maiden name--unveiled Herbalife.
The products weren't cheap. A weight-loss program alone cost about $30 a month, and, purchased at list price, the full line of vitamin supplements and diet powders would cost about 10 times as much. But Hughes had a way around that. Customers who became distributors would get a minimum 25% discount on everything they bought in lieu of the money-back guarantee; with that discount, you could make a profit selling products to others. You could even get commissions by recruiting other salespeople. The bigger the organization you built, the bigger the payoff.
The payoff for Herbalife, which didn't have to worry about sales-force overhead, was dramatic. In its first five years, sales soared from $386,000 to $423 million, an increase of more than 100,000%; the company progressed from the wig plant to a Culver City industrial complex to a high-rise near Los Angeles International Airport.
Hughes, a multimillionaire well before his 30th birthday, progressed quickly to gold rings and a Cartier watch, to custom-made cuff links and expensive suits, to two Rolls-Royces. He bought a $7-million mansion in Bel-Air from singer Kenny Rogers. Having just divorced his first wife, former Miss Santa Monica Kathryn Whiting, he wed former Swedish beauty queen Angela Mack in 1984, hiring Wayne Newton to entertain their 300 wedding guests.
At rally after rally--many of which were broadcast as infomercials over the USA Cable Network and by TV stations across the country--Hughes projected a boyish enthusiasm and charisma, his thick Prince Valiant hairstyle more appropriate to a rock 'n' roller than a corporate executive. And he perfected the story he had been telling since he started Herbalife, the new story of who he was.
Hughes' appearances were part revival meeting, part Richard Simmons-style pep talk, part the Apostle Paul finding his vocation as a missionary. But Hughes could deliver his rags-to-riches tear-jerker (complete with the death-by-diet-pills myth of his mother's death) so that it resonated with just about anyone who wished to lose weight--or dreamed of becoming fabulously rich like him. "Against all odds, he made it big," says one Herbalife distributor. "It was one of the things that drew people to him. He turned his life around. Maybe we could do it too."
In 1985, Hughes attracted a lot of attention, much of it from government regulators. That March, the California attorney general and the state Department of Health Services charged him and Herbalife with making "untrue or misleading" product claims--primarily involving the caffeine content of some Herbalife products--and operating an "endless chain marketing scheme."
Prompted by complaints alleging that Herbalife product users had suffered illness and death, a U.S. Senate subcommittee called Hughes before a hearing in May. He had lost none of his bravado. Referring to a panel of nutrition experts who had criticized Herbalife in testimony the previous day, he asked the senators, "If they're such experts in weight loss, why were they so fat?"
Herbalife seemed constantly to be in the news. People magazine ran a profile of Hughes in which his ex-wife said he was so obsessed with money that he would sit up in bed working out interest rates and finances. "The sad thing is, it didn't seem to make him happy," Whiting noted.
Around the same time, Stuard Hartman, now remarried, received a visit from a freelance investigator working for a television news program that was checking allegations that Hughes' story about his mother was false. "They suspected this was all bogus," Hartman says.
He, however, refused to cooperate. "They pretty much told me they wanted to destroy him. No matter what our relationship was, I did not want to have to do that to him." The story never aired.
None of the stories about Hughes dug deeply into his childhood or his mother's death. And no one at Herbalife was likely to make any waves. From the early days of the company, Hughes surrounded himself with a loyal group of aides. He had known two of them, Rosen and Christopher Pair, at CEDU; Conrad Lee Klein, a longtime Hughes associate at Herbalife, started working for him as outside legal counsel in 1982. Hughes rewarded them handsomely--in 1999, for example, Pair received $3.4 million in salary, bonuses and other payments, plus stock options valued by the company at $382,000. Family members held key posts in Herbalife management, including Hughes' brother Kirk, three sisters-in-law, a brother-in-law and a cousin.
So Hughes' story--and his company--stayed intact. The California charges were settled for $850,000 and nothing came of the federal inquiries. Sales in the United States suffered from the adverse publicity, and some distributors dropped out. But the company still went public in 1986 and, to offset the domestic slump, launched an aggressive expansion overseas. Between 1988 and 1990, it opened operations in New Zealand, France, Spain, Germany, Israel and Mexico.
Personally, Hughes had suffered another upheaval as his second marriage ended after about a year. According to several sources, Angela had a substance-abuse problem that her husband could not tolerate. She would later die, the sources say, of alcohol-related illness. Although there was no formal company policy, substance abuse of any kind was not tolerated at Herbalife. "It was in effect a health-food company, and you're selling health," notes Perry Turner. "One of the last things to be included in a company of that type would be something that is unhealthy."
Turner once discussed an employee's drug habit with Hughes and other executives. "I said, 'The one thing you can't have here is a drug problem when you've got this kind of business and these kinds of distributors,' " he recalls. "This was something Mark agreed with." When someone asked, "If he keeps it private, what's the deal?" Turner insisted: "Listen, there's no room for it in this kind of business. That kind of thing can't be kept private." Hughes rebounded from his second divorce, marrying Suzan Schroder, a former Miss Hawaiian Tropics and court reporter, in September 1987. She was petite and buxom, with high cheekbones, long blond hair and a certain Barbie-doll quality. In their appearances together--and there would be many as they threw themselves into charitable endeavors--she would be the most glamorous of escorts.
One of their guests at the wedding was Jack Reynolds, then a plumbing contractor. Mark's maternal grandparents, who had feuded with Hartman, had arranged for Mark to meet Reynolds at least twice during his childhood, introducing him as his real father. At Suzan's urging, they had gone on vacation to Maui together and apparently warmed to each other.
Another addition to the family arrived in December 1991 when Suzan gave birth to Alexander Reynolds Hughes. And the new father made sure they would not be cramped for space, spending $20 million to acquire Grayhall, a historic, 22,000-square-foot Beverly Hills mansion designed to resemble a Tirolean castle. One publication called it a "storybook home for a storybook couple."
Relations between the couple could get frosty, though, particularly when Suzan tried to get Mark to open up about his past. Once, says a source, "Suzan brought up [Hartman] at Thanksgiving. Mark got pretty angry. It was like a taboo subject." Echoes Kirk Hartman: "When we got together, the past wasn't talked about."
Some believe Mark blamed Stuard Hartman for his mother's death. "He loved this lady," says Rosen. "He was torn apart." Hughes, who referred to Hartman as his stepfather, specifically excluded him as a beneficiary in a 1997 will.
In December 1994, another tragedy--the death of Mark's brother Guy Hartman at age 37, after years of alcohol abuse--brought Stuard Hartman to Grayhall for the first time. During the post-funeral reception, Hartman got a tour of the property, the proof of Hughes' self-made success. As guests were leaving, Hughes approached his brother Kirk and Kirk's wife, Jackie. "I showed him," he told Jackie Hartman. "I showed that bastard what I could do."
The Hugheses kept up their public profile. In May 1995, D.A.R.E. America honored them with its "Future of America Award," praising their commitment to "teaching our kids how to say no to drugs." But the marriage was crumbling. And less than 18 months later, Mark did something that suggested he was touched with the same curse as his late brother and mother.
About 11 PM on November 30, 1996, a Hawthorne police officer pulled Hughes over for driving on the wrong side of the road. Hughes, the police report said, was making his way from Los Angeles International Airport to the Bare Elegance strip club. The officer had him exit his Jeep Cherokee and put him through several sobriety tests, which Hughes failed.
Hughes said he had only drunk two glasses of wine. But a field breath test registered a blood-alcohol level of 0.22, almost three times the legal limit. Says Dr. Haraszti: "On the face of it, that is diagnostic of alcoholism. It is such a high level that an ordinary person would not be able to stand up, much less drive. You have to use a lot to develop that level of tolerance."
After being booked and released, Hughes was charged with driving under the influence. In April 1997, he pleaded no contest, agreeing to serve three years' probation, pay a fine of $1,501, have his driving license suspended and attend an alcohol-education program. (It has been reported that Hughes also was arrested for drunk driving in Malibu in July 1997. Court documents show he was arrested for misdemeanor driving on a suspended license and cited for various Vehicle Code infractions.)
The DUI conviction went unnoticed, buried in an Inglewood courthouse free of tabloid scandal-hunters. And the possibility that Herbalife's bronzed personification of health might have a serious health problem remained a secret.
Perry Turner, who worked for Herbalife until he retired in 1988, insists he never saw Hughes drink. Hughes continued to function as Herbalife's CEO, the energy and industry he devoted to his company never flagging. But the consensus among sources who discussed his drinking--all of whom asked to remain anonymous--is that he had become a problem drinker by the early 1990s.
According to Hughes' autopsy report, a Beverly Hills psychiatrist treated him with Antabuse, a drug that inhibits the craving for alcohol. "Dr. [Stephen] Scappa was aware that the decedent had drinking binges," the report says. But Dr. Drew Pinsky of Las Encinas Hospital notes: "Antabuse is fairly worthless unless [the patient] is involved in a program of recovery. They use Antabuse as a substitute for recovery."
According to Pinsky, those who binge on alcohol or drugs "tend to have more psychiatric pathology" than more continuous drinkers. Experts agree that Hughes, with his genetics, early substance abuse and a pathology of unresolved childhood issues and repressed feelings, fits the profile. "He resorts to alcohol as a way to numb his feelings," theorizes Haraszti. "He finds that to be effective and he is not motivated to change."
For Herbalife, so dependent on Hughes' cultlike appeal, public disclosure of his problem could have been a bombshell, equivalent almost to the scandals involving televangelists Jimmy Swaggart and Jim Bakker. "I would have thought it would have a profound effect on the business because the distributors so admired him," suggests Turner.
With Herbalife's glory days long past, shareholders would not have welcomed the news either. Although sales nearly doubled between 1994 and 1998, net profits increased only 5%. After Hughes registered plans in early 1997 to sell one-quarter of his shares, the stock began to slide from its all-time high of $37. As shares fell as low as $6, the CEO angered investors by discounting stock options for corporate insiders by about 50%. One money manager complained to Business Week that Hughes had "completely pushed the limits of shareholder boundaries."
The pressure on Hughes and his aides to maintain his healthy image was "dramatic," says a source. One executive who knew of Hughes' problem was not replaced, the source says, for fear of adding to the circle of people in the know.
Richard Marconi, whose company, Global Health Sciences, was one of Herbalife's major suppliers, says he wanted to avoid a possible scandal. So he approached Pair and another Herbalife executive with a plan to take Hughes to a discreet alcohol rehab facility in Switzerland, with each man spending a week as Hughes' overseer. For reasons still not clear, they never followed through.
In September 1997, Suzan Hughes filed for divorce after 10 years of marriage. As part of a settlement that gave her a mansion near Grayhall and alimony, lawyers made sure she would not say anything out of turn. Any discussion of her ex-husband's "wealth or any other habits that you think he has which are inappropriate" would result in her forfeiting the house and cash, a court document stated. Suzan declined to be interviewed for this article, citing the settlement.
At the time of Herbalife's 20th anniversary celebration one year ago, Hughes was under considerable stress. He had made an offer to buy out the public's shares, which had buoyed up the stock, but it had stalled due to financing problems and shareholder lawsuits. The stock was stuck at about $14. Beneath his buff exterior, sculpted by hours of personal training, Hughes' health was brittle. He was recovering from a recurrence of pneumonia, and the treatment involved steroids, which made it difficult for him to sleep.
"He was edgy, more short of temper," says Rosen. For his sleeping problems, he was taking Doxepin, which Haraszti describes as an "antediluvian" medication that he would not prescribe to anyone, let alone an alcoholic.
But Hughes still seemed to have plenty going for him. In February 1999, he married Darcy LaPier, another former Miss Hawaiian Tropics with two children and a history of wealthy husbands, including actor Jean-Claude Van Damme. Plans for their Benedict Canyon home--a colossus to be built on 157 acres that Hughes had acquired from Merv Griffin--were proceeding. And he and Darcy had moved into the peach-colored Malibu villa that they purchased in December 1999.
Herbalife's leader, his hair now coiffed in a leaner, sleeker do, shone at the Forum celebration. "He was hilarious, his usual charming, excited, exuberant self," recalls Denver-based distributor Leslie Stanford. Nobody could have foreseen the terrible news of that Sunday morning only three months later. Laments John Tartol, a close friend and longtime Herbalife distributor: "It was unbelievable to me."
Darcy Hughes told coroner's officials that her husband had been drinking the night of May 20 and had fallen asleep on the living-room sofa. She tried to wake him about midnight so that they could go to bed. But he stayed on the sofa. About an hour later, she failed again to rouse him and went up to bed herself, sleeping in a room adjacent to the master bedroom. She awoke at 10:30 on the Sunday morning to find him dead on their bed.
In the lobby of the Century City building that became Herbalife's headquarters in 1996, the legend lives on. The inscription on a framed poster of Hughes at a rally relates how millions of people "have become better human beings as a result of his dream, his vision and his precious gift to the world." It continues: "Now it's more important than ever to give this life-changing gift to others, because anyone who is touched by Herbalife carries a little bit of Mark inside of them."
Up on the 15th floor, from the window facing north, you can see the Benedict Canyon property, which is up for sale. Associate Conrad Klein is now an Herbalife executive vice president and a trustee of the huge Hughes estate. He has thinning hair, hooded eyes and a stooped posture. During a two-hour interview, a genuine affection for Hughes comes through. "He was a very sweet and gentle man," Klein says. "He had a very winsome way about him." With a pang, he adds: "I loved the guy. He had more joie de vivre than anyone you would ever meet."
Despite the evidence to the contrary, Klein refuses to amend the official story Hughes created. Mark, he says, was not raised in a two-parent household, and his mother "did have weight problems." Klein vigorously denies that Hughes had a drinking problem. "There is no basis for anybody to tell you Mark was an alcoholic. Mark was a good party animal when he felt like it. Maybe he had too much to drink at a party.To say Mark's an alcoholic, it's absurd."
At his grandmother's party, Klein says, Hughes "did in fact have something to drink. He had a lot to drink, everybody had a lot to drink."
Christopher Pair, the new CEO, also is keeping Hughes' story alive. In a message to distributors posted on the Herbalife Web site, he says, "Mark's mother died from unsafe dieting practices. This was a tragedy he never forgot." Distributors call talk of alcoholism a smear on Herbalife. "The only way our competition can hurt the company is some kind of slur campaign," Tartol says.
Herbalife stock is trading at about $7.50 a share, meaning Mark Hughes' holdings have lost about half their value since the company's 20th anniversary one year ago. The shares are held in trust for 9-year-old Alex Hughes, the principal beneficiary of his father's estate.
In addition to Klein, the trustees are Pair, who was convicted of shoplifting $400 worth of merchandise from a Beverly Hills department store in 1998, and Jack Reynolds, who may--or may not--be Alexander's paternal grandfather. In July, Reynolds, the former plumbing contractor, was appointed chairman of Herbalife International.
In Malibu, the house where Hughes died is for sale at a price of $31 million, fixtures and furnishings included. His widow, Darcy--whom a judge in January awarded $20 million from the estate--no longer lives there.
Jean-Paul Chiari, a dapper Frenchman who was an estate manager for Hughes, points out some of the mansion's more outstanding features--the set of three Baccarat crystal chandeliers in the lobby and living room, the handmade Aubusson rugs, the manicure station, the walk-in fridge, the computerized lighting-control system, the giant TV screen in the family room that descends from the ceiling. Only Dustin Hoffman has a similar video set-up complete with state-of-the-art projector in his home, Chiari says. "But Dustin Hoffman's isn't as large as Mr. Hughes' screen."
Most of the framed photographs on display feature Hughes with his son, whom he saw as often as possible given the demands of Herbalife. They would vacation together at Christmas and Easter and for three weeks in the summer, visiting resorts in the Caribbean and the French Riviera, where they could sail, surf and jet-ski. In the photos, they could hardly look happier. "He was a very family-oriented man," Chiari says of the father.
Just a few miles up the coast in Ventura County, another father lives in a house not far from where Mark Reynolds Hughes grew up. Stuard Hartman has volunteered to take a DNA test to prove he is Hughes' father but Herbalife declined the offer. He says he has "no ax to grind," no financial motive--a claim on the estate, for example--to make mischief.
With his death, Mark Hughes' estrangement from Hartman is now permanent. Hartman can only wonder what happened to the boy he raised to the age of almost 14, wonder why Mark, despite all his worldly success, would suffer a torment so similar to that of his mother.
"I've always been very proud of him, regardless of our relationship, for the successes he achieved," Hartman says. "It's obviously a very rare individual that can do what he did." But success, he adds, "didn't give him any satisfaction or happiness. His life was testament to that."