Wednesday 17 December 2014

Financial journalist asks: How the fuck has the FTC allowed Herbalife?

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)

gratziani herbalife distributor
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.)
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:


Bill Ackman

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.  

Here's the new video: 


  1. I sort of wonder whether the FTC has the balls to shut down this scam? Somehow I believe they will force Herbalife to make changes but won't actually shut them down. Then some years from now, we'll hear the same crap that Amway IBOs used. That the FTC praised Herbalife's plan and that they are the standard for MLMs. But I hope the FTC shuts them down. There is a lot of financial damages done to people who cannot afford it. Their products, like Amway's are mostly self consumed by people chasing the residual income myth.

    1. Joecool. The question I was asked:'How the fuck has the FTC allowed Herbalife?,' should really be:

      'Is the USA a mature democracy ruled by law, or a puerile kleptocracy ruled by narcissistic parasites and their amoral sophists.'

      I personally think that 'MLM' mobs' endless empty promises to 'have reformed their ways' have constituted obstruction of justice in order to continue to commit fraud. As such, these transparent tactics form part of an overall pattern of ongoing major racketeering activity as defined by the RICO Act.

      From my own personal exerience, I know that in the US government/Dept. of Justice, there are a number of persons of sufficiently high moral, and intellectual, callibre to realize that so-called 'MLM' represents a threat to democracy and the rule of law all around the globe. If such persons ever came to the forefront, then it would be very likely that a number of 'Herbalife' racketeers are going to get jailed, and that a rigorous investigation of the wider criminogenic phenomenon of 'MLM' racketeering, would finally be launched.

      The main factor which is protecting 'MLM' racketeers, is that there are a number of former senior US regulators, and politicians, who should themselves be facing prosecution and jail sentences. One of these persons is Mitt Romney, whom I see has reappeared on the scene again as a possible Presidential candidate.

  2. David. Let's say that the Federal Trade Commission finally takes the final step to wind up Herbalife. Do you believe this would have wide scale repercussions and signal the end of the industry?

    Do you believe that Amway and other Amway clones depend on Herbalife's survival to keep their unscrupulous business frauds operating?

    Obviously, had Herbalife not gone public, they would not have been dissected so thoroughly in the public eye by Pershing Square. Could Herbalife's fate also describe the fate of the entire MLM industry?

    MLM is a scheme designed to recruit new customers, whose loyalty they achieve by significant myths--lies. It amazes me that more new suckers are found to replace all those that discover the bad truth and get out. The video is exposes Hebalife as a parent that cannibalizes its own children. Hardly a secret. That they can continue to be allowed to operate is a crime. It is a crime that politicians look to these schemes to fund their elections.

    1. Quixtarisacult - Correct, the entire phenomen of 'MLM' racketeering has depended on its bosses maintaining a monopoly of information, but this monopoly is crumbling every day. There would never have never have been a private investigation of 'Herbalife' if this corporate front for fraud had not been capitalized on Wall St. The entire 'MLM' house of cards now rests on 'Herbalife' - an increasingly-flimsy foundation on which a determined heavyweight, Bill Ackman, is pulling like mad.

      That said, Bill Ackman and his researchers, would never have latched onto the 'Herbalife racket, without the unpaid efforts of numerous persons who have all been openly challenging the 'MLM' lie for years.


      When the 'Herbalife' shill, John Peterson, was recently found slumped in his Ford pick-up truck with a bullet in his head, I was asked whom I thought might of 'whacked' him?

      At that time, I gave the response that I had no hard evidence to prove that Peterson had been actually murdered, but that, due to the circumstances, I believed that the FBI should place the dark scenario that he he had been murdered (and that the killing had been made to look like a suicide), very high on their list of possibilities - and investigate accordingly.

      Peterson was one of the main 'Herbalife' shills who had been running the advanced fee frauds, but apparently Peterson, unlike others, could not be excommunicated from the gang. A rigorous criminal investigation of Peterson could have led the FBI directly into the entire 'Herbalife' racket, and ultimately into the entire phenomenon of 'MLM income oportunity' racketeering.

      In reality, the number of 'MLM' racketeers in whose financial interests it was that all criminal investigation of Peterson should be stopped, is endless.

  3. David, I see you have entered the debate on Seeking Alpha about this video.

    SA proves everything you have written. Even when Herbalife apologists are confronted with the top guns in their gang admitting it's a deception, they still cling to their storybook just like religious fundamentalists cling to the Bible or the Koran. One of the latest comments actually says Bill Ackman 'invented' the video to manipulate Herbalife stock..

    1. Anonymous - At the beginning of the exchanges on SA , various 'Herbalife' propagandists kept saying that the damning parts of the video (which Ackman and his people selected), had been taken out of context.

      Later, it was claimed that the purpose of the meeting was for 'Herbalife' top brass to discuss how to help 'Distributors' to remain longer in 'Herbalife.'

      In reality, 'Herbalife' operates very much like a rigged casino. The longer the 'Herbalife' bosses have kept mug-punters playing at the tables, the more cash they have collected and the more fresh mug-punters they have attracted.