Friday, 16 September 2016
Forget Wall St.: Here's the reality behind the 'Herbalife (HLF)' fairy story.
Illinois residents who believe they were victimized by nutrition products seller Herbalife, which for years has faced allegations about its business practices, have until Friday to file a complaint with the state to potentially qualify for part of a $3 million settlement.
Attorney General Lisa Madigan's office has received more than 500 complaints about Herbalife, spokeswoman Eileen Boyce said.
The funds available to Illinois residents are on top of a recent $200 million national agreement between the company and the Federal Trade Commission that closed an investigation of the nutritional products company. Though Herbalife avoided being classified by the regulator as a pyramid scheme, it agreed to settle charges that it deceived consumers into believing they could earn substantial money by selling diet goods, supplements and personal care products.
According to the FTC's complaint, Herbalife claimed that participants could quit their jobs, earn thousands of dollars a month, or even get rich. In reality, the FTC said, the "overwhelming majority" of distributors "earn little or no money."
Illinois has been the only state to conduct its own investigation and arrange a separate settlement, according to Herbalife.
When the FTC has details about how the $200 million national settlement will be distributed, it will be posted on the agency's website and outreach efforts will begin, but no timetable has been set, said FTC spokesman Frank Dorman.
To be eligible for restitution from the state, Illinois Herbalife members must have participated with Herbalife sometime between 2009 and the present.
"Our restitution process will begin after the FTC's process is completed, and it will provide additional restitution on top of what will be provided by the FTC," Madigan spokeswoman Boyce said. The state's payouts to individuals will be determined on a case-by-case basis, she said.
Among the Chicagoans seeking restitution is Maria Cruz, 65, who lives in Chicago's Brighton Park neighborhood.
Cruz learned of Herbalife in her neighborhood, she said through a translator. Initially, she and her husband began consuming the product themselves, and thought it would be an easy way to make money from home.
"One day he told me, 'I took out something from our savings to enter into the business opportunity and get the product at 50 percent off,'" Cruz said of her husband.
The complaint she filed with Madigan said she spent more than $25,000 with Herbalife from 2008 to 2015. "I was just going in a cycle of buying the product and selling it, and buying the product and selling it, but it wasn't really anything going into my pocket," she said.
Also filing a complaint was Alicia Aguayo, 46, who said she was walking down 63rd Street to a local grocery store when someone handed her a flier about Herbalife.
"They told me I was going to make money fast," she said through a translator. "The people on top were earning, according to them, $10,000 to $12,000 a month, but whatever I did earn from selling, I would use that money to purchase more product, so it was never any real earnings."
She spent about $6,000 since 2008, according to the complaint she filed with Madigan's office. "I entered with a dream to make money, and it was all time lost," Aguayo said.
Herbalife's brush with regulators hasn't dampened the enthusiasm of billionaire investorCarl Icahn. He has bought nearly 3 million Herbalife shares in recent weeks and wants to buy even more. Already the company's biggest shareholder, he said he has asked the FTC for permission to buy up to 50 percent of the company, Bloomberg News reported earlier this week. Icahn already owns about 20 percent of Los Angeles-based Herbalife.
Herbalife has said the settlements "are an acknowledgment that our business model is sound and underscore our confidence in our ability to move forward successfully."
"Otherwise, we would not have agreed to the terms," Herbalife Chief Executive Michael Johnson said recently.
Besides the $200 million national settlement, Herbalife must restructure its U.S. operations and stop using images of opulent mansions, private helicopters and luxury cars. Salespeople must be paid for selling products, and the company must scrap incentives that reward them for recruiting other salespeople.
Herbalife also is prohibited from allowing participants to spend money on leasing or buying premises for "nutrition clubs" or other business locations before completing a year as a distributor and taking a business training program.
Billionaire Bill Ackman has called Herbalife's business model a pyramid scheme, and has been betting against the company for years.
Facesoffraud.com is a website featuring Illinois Herbalife members not happy with their experiences. "Herbalife victim identification and support efforts in Illinois are paid for by a grant from Pershing Square Capital Management," the website notes. Pershing Square is Ackman's firm.
Consumer advocate Jon Taylor said he has researched more than 600 multilevel marketing companies, also known as network marketing and direct selling.
Product selling can occur at parties. The opportunity is appealing because multilevel marketing companies, or MLMs, allow people to start businesses cheaply and work from home. Recruiting helps sellers boost their commissions and gives members a chance to earn the lucrative compensation that some marketers tout but few distributors achieve.
Taylor called the FTC's action on Herbalife "a very positive development for consumers," but said the commission "still operates on the assumption that there are 'good MLMs' and 'bad MLMs,'" Taylor said. "The MLM business model itself is flawed and a 'good MLM' is an oxymoron."
Chicago Tribune (copyright 2016)