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https://www.ftc.gov/news-events/audio-video/video/ftc-press-conference-herbalife
Part (preliminary) transcript
FEDERAL TRADE COMMISSION: Herbalife Press Conference July 15, 2016/10:00 a.m.
GOOD MORNING, EVERYONE. THANK YOU FOR JOINING US HERE TODAY. I AM HERE TO ANNOUNCE A SIGNIFICANT LAW ENFORCEMENT ACTION THAT THE FEDERAL TRADE COMMISSION HAS TAKEN AGAINST THE LOS ANGELES BASED MULTI LEVEL MARKETING COMPANIES HERBALIFE. THEY HAVE AGREED TO A 200 MILLION-DOLLAR JUDGMENT FOR REFUNDS TO MANY DISTRIBUTORS AND FORCES THE COMPANY TO IMPLEMENT A MAJOR RESTRUCTURING OF BUSINESS OPERATIONS. IN A COMPLAINT FILED TODAY IN THE CENTRAL DISTRICT OF CALIFORNIA. THE FTC HAS CHARGED HERBALIFE BY DECEIVING HUNDREDS OF THOUSANDS OF PEOPLE WHO SAW HERBALIFE CAMPAIGNS IN ENGLISH AND SPANISH. THEY SIGNED ON FOR WHAT THEY THOUGHT WAS A LEGITIMATE AND LUCRATIVE BUSINESS OPPORTUNITY SELLING HERBALIFE PERSONAL CARE PRODUCTS. THE COMPANY PROMISED PEOPLE A DREAM. A CHANCE TO CHANGE THEIR LIVES, QUIT THEIR JOBS, AND GAIN FINANCIAL FREEDOM. HERBAIFE'S MARKETING MATERIALS CLAIMED CONSUMERS REGARDLESS OF BACKGROUND AND EXPERIENCE COULD EARN PART TIME INCOME FROM $500 TO $1500 A MONTH AND SUBSTANTIAL FULL TIME INCOME SHOWING PICTURES OF HERBALIFE MEMBER EXPENSIVE HOUSES, LUXURY CARS AND EXOTIC VACATIONS. TESTIMONIALS IN ENGLISH AND SPANISH ASSURED CONSUMERS THEY COULD ACHIEVE THE DREAM. SOME REPORTED EARNING $16000 A MONTH. OTHERS SAID THEY WERE MULTI MILLIONAIRES. ONE SALES PITCH A HERBALIFE DISTRIBUTOR ASKED "HOW MANY OF YOU WOULD LIKE TO MAKE AT LEAST A MILLION A YEAR IN INCOME? "ANOTHER SAID" WE WENT FROM BANKRUPTCY TO BEING SET FOR LIFE." THE FTC HAS CHARGED THIS WAS TRUE. THAT THIS WAS AN ILLUSION. THE VAST MAJORITY OF HERBALIFE DISTRIBUTORS FOUND THEY COULD MAKE LITTLE OR NO MONEY SELLING HERBALIFE PRODUCTS. IN TO 14 THE AVERAGE AMOUNT OF SALES LEADERS RECEIVED IN A YEAR FOR REREGARD PAYMENTS OF RECRUITING OTHERS WAS THEN THAN THREE HUNDRED DOLLARS. THE COMPANY'S OWN SURVEY RESULTS SHOW THE MAJORITY OF PEOPLE INVESTING THE MOST TO BUILD A REAL RETAIL BUSINESS. PEOPLE WHO OPENED A NUTRITION CLUB WORKING LONG HOURS MADE NO MONEY OR LOST MONEY. THE SMALL MINORITY OF HERBAIFE DISTRIBUTORS MAKING A LOT OF MONEY WERE PAID FOR BUYING THE PRODUCT THEMSELVES AND SUCCESSFULLY RECRUITING LARGE NETWORKS OF OTHERS TO DO THE SAME. THAT'S WHY IN ADDITION TO CHARGING DECEPTION THE COMPLAINT A LEDGES THAT THE COMPENSATION STRUCTURE OF HERBALIFE IS UNFAIR FOR REWARDING TO ENCOURAGING OTHERS TO JOIN AND PURCHASE PRODUCTS RATHER THAN IN RESPONSE TO ACTUAL RETAIL DEMAND FOR THE PRODUCT. TODAY'S 200 MILLION-DOLLAR SETTLEMENT ONE OF THE LARGEST RETAIL SETTLEMENTS WILL PROVIDE COMPENSATION FOR MANY OF THE DISTRIBUTORS AND THE LOSSES THEY HAVE SUFFERED. THIS WILL PROHIBIT MARKET TACTICS SUCH AS A PROMISE OF A LAVISH LIFESTYLE AND UNTOLD RICHES AND THAT THEY'RE LIKELY TO EARN CAREER LEVEL INCOMES. THE SETTLEMENT REQUIRES HERBALIFE TO REVAMP IT'S MULTI-LEVEL DISTRIBUTOR COMPENSATION PLAN SO THE COMPANY MUST TRACK RETAIL SALES, PAY REWARDS BASED ON THE SALES AND COLLECT RETAIL RECEIPT INFORMATION TO INSURE THE SALES ARE REAL. THIS WILL CHANGE THE CURRENT SYSTEMS INCENTIVES REWARDING DISTRIBUTORS BUYING A DOWN LINE OF PRODUCT AT WHOLESALE WITHOUT REGARD TO RETAIL DEMAND. AS PART OF THE RESTRUCTURING HERBALIFE WILL BE REQUIRED TO CREATE TO LINES. PREFERRED CUSTOMERS TO TAKE ADVANTAGE OF DISCOUNT PRODUCT. CAN NOT RESALE PRODUCT RECRUIT OR RECEIVE COMPENSATION. AND BUSINESS OPPORTUNITY FOR RETAILING THE PRODUCTS. TO MAKE SURE EVERYONE IN THE ORGANIZATION GETS THE MESSAGE. 80 PERCENT OF THE COMPANY'S NET SALES HAVE TO BE COMPRISE REAL SALES TO REAL USERS AND HIGH LEVEL DISTRIBUTOR COMPENSATION WILL BE CUT. THEY ARE REQUIRED TO PAY FOR A COMPLIANCE AUDITOR TO MONITOR OUR ORDER AND ASSURE HERBALIFE ADHERES TO TODAY'S AGREEMENT. THIS WILL WE HOPE WILL SET AN EXAMPLE FOR THE MULTI LEVEL MARKETING INDUSTRY MORE GENERALLY. I WOULD LIKE TO CONCLUDE BY THANKING THE FTC STAFF AND THE BUREAU OF CONSUMER PROTECTION AND ECONOMICS WHO DEVOTED COUNT LESS HOURS OVER MANY MONTHS TO INVESTIGATE THIS CASE AND SECURE THIS IMPORTANT SETTLEMENT TO CONSUMERS. I WOULD LIKE TO EXPRESS MY GRATITUDE TO -- DAVID GIVONS AND DOUG SMITH. THANK YOU,
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