Bill Ackman's 'Herbalife (HLF)' challenge sinks, but will he now have the courage/freedom to challenge 'MLM' racketeering?

(After posting this article, a Blog reader has asked me to add a 'short' explanation of how 'short-selling' works. Unfortunately, there is no brief way to explain the mechanics of short-selling. For the purposes of this article, all that Blog readers need to know is that, in a short-selling share trade, the short-seller makes lots of money if the market-price of the share being short-sold, collapses, but the short-seller can equally lose lots of money if the market price of the share being short-sold, sky-rockets. In many countries, including the UK, short-selling is considered to be open to abuse and is prohibited by law. However, short-selling is not unlawful in the USA where it has also provided a financial incentive for so-called 'activist investors' to expose abuse). 

Bill Ackman

www.cnbc.com/2018/03/01/carl-icahn-on-herbalife-win-over-ackman-i-enjoy-a-good-fight-especially-when-i-win-it.html?__source=sharebar%7Ctwitter&par=sharebar

www.cnbc.com/2018/02/28/ackman-exits-bet-against-herbalife.html

www.nytimes.com/2018/02/28/business/dealbook/ackman-herbalife-pershing-square.html

www.latimes.com/business/la-fi-ackman-herbalife-fight-20180228-story.html

www.bloomberg.com/news/articles/2018-03-01/icahn-says-epic-herbalife-battle-with-ackman-was-a-good-fight

  
After more than 5 years, Bill Ackman of Pershing Square Capital Management has evidently been forced to cut his company's losses and ditch his $1.3 billion short-selling position against 'Herbalife.' It is important to note that so far, Mr. Ackman has not made any public comment on these matters, but apparently he has called Carl Icahn (who still holds 26% of publicly-traded shares in the 'Herbalife' racket) to admit defeat. However, his latest move doesn't in any way indicate that Mr. Ackman feels that he is wrong about his analysis of 'Herbalife' being the ultimately-valueless corporate-front for a vast, and pernicious, pyramid scheme. That said, I wonder if Mr. Ackman is finally going to realise that he, and his legal advisers, set out on the trail of 'Herbalife' like a bunch of over-confident hunters loaded for rabbit when they should have been loaded for bear.

What would be truly ironic is if 'Herbalife' were now to be subjected to a rigorous, well-informed investigation/prosecution revealing its bosses to have been peddling effectively-valueless shares in an organised criminal enterprise. In reality, so long as Carl Icahn's 'MLM' pitchman chum remains in the White House, the chances of any major 'MLM' racket being busted, are zero. Bill Ackman cannot be unaware of this tragicomic situation.

In the past I've made it no secret that, in the week that Bill Ackman announced his big bet against 'Herbalife,' I managed to speak to him by phone for about 45 minutes (I called his office and he returned my call). Mr. Ackman said he had no knowledge of my work, even though (many months before) I'd been in contact with two of his researchers. I might add that neither of these persons were at liberty to tell me who they were working for or exactly why they were researching 'Herbalife/MLM.' 

Everything fell into place when Mr. Ackman's 'Herbalife' short-selling trade was suddenly everywhere in the financial media. Obviously, this is what prompted me to make contact and tell him what I thought of his initial intervention and perhaps discover the extent of his knowledge and resolve. I also wanted to warn Mr. Ackman that the bosses of 'Herbalife' would try to character assassinate him, and/or dig up dirt to try to scare him off, rather than simply present a defence to his accusations.

I have to say that during the course of our conversation, Mr. Ackman was relaxed and charming, but he did not particularly impress me. He was aware that a number of people had been examining the 'MLM' phenomenon for a lot longer than he had. He privately agreed with me that 'Herbalife' is a cult, but he couldn't use the 'C' word publicly. At this point, I did try to explain to Mr. Ackman that, in my experience, when challenging a cult, the first 10 years are always the hardest. Unfortunately, Mr Ackman thought I was joking, even though I told him that I had supplied informed-complaints to UK trade regulators over a period of 14 years, before (in 2007) a UK Trade Minister filed a public-interest bankruptcy petition against 'Amway UK Ltd.' Subsequently, UK government attorneys failed to close this 'MLM' front-company when it co-opted a former Deputy Director of the UK Serious Fraud Office.The (then) CEO of 'Amway UK Ltd.' was allowed to commit perjury when she gave assurances to a UK High Court Judge that the company had no idea that its 'Distributors' had been acting illegally, but all the same, when faced with investigation/prosecution the company had voluntarily reformed its previous business model, expelled all offending 'Distributors' and, consequently, it would no longer be in breach of UK laws which prohibit pyramid schemes. 

At the time I spoke with him, Mr. Ackman's faith in the US regulatory agencies, and system of justice, was every bit as misplaced as my own faith had once been in their UK counterparts. He had convinced himself that, because Herbalife is so obviously a fraud, US officials (under the second Obama administration) would swiftly take action against the company and close it down; but then, Mr. Ackman did have lots of green reasons to believe in this attractive outcome, and preventing him from listening to any ugly suggestion to the contrary. My own reasons for believing that UK officials would close 'Amway' down, had been different, but nonetheless wishful.

Thus, Mr Ackman did not take onboard my urgent concerns that he was making a big mistake by pursuing 'Herbalife,' rather than taking on the wider 'MLM' phenomenon. That said, he invited me to send my analysis to his attorney. Yet, apart from one unconvincing interview (given in 2013) in which Mr. Ackman started to describe 'Herbalife/MLM' as being an example of a 'Big Lie' - a totalitarian propaganda technique employed by the 'Nazi' regime and other dictatorships  - I might as well not have tried to communicate with anyone at Pershing Square Capital Management.

The sad truth is, that despite having the advantages of money, celebrity (and the resulting access to the media and legislators), by foolishly concentrating their fire on the 'Herbalife' racket (to the exclusion of all other 'Amway' copy-cat 'MLM' cultic rackets), Mr. Ackman and his associates have effectively wasted tens of millions of dollars making it appear that 'Herbalife' might be a fraud, but 'Multi-Level Marketing' must itself be a legal form of enterprise.

Hopefully I'm wrong, but I very much doubt that Bill Ackman will now have the courage/freedom publicly to tell the truth and accept that he didn't really understand the nature, and historic significance, of the criminogenic phenomenon he was actually taking on, when (in December 2012) he challenged the bit of it known as, 'Herbalife.'

Interestingly,  Bill Ackman gave an interview in 2016 to 'Fortune' in which he half-jokingly began to admit that his own humourless attempts to expose 'Herbalife/MLM' were nothing like as an effective weapon as satire: 

 “In the future I am going to bet against the stock and then deliver my material to John Oliver ... He’s the greatest man ever.” 

Personally, in the light of his painful experience with 'Herbalife,' I'd love to know Bill Ackman's opinion of the following deconstructed analysis.

More than half a century of quantifiable evidence, proves beyond all reasonable doubt that:

• the widely-misunderstood phenomenon that has become popularly-known as 'Multi-Level Marketing' (a.k.a. 'Network Marketing') is nothing more than an absurd, non-rational,  cultic, economic pseudo-science maliciously-designed to lure unwary persons into de facto servitude, dissociate them from external reality and not only steal their money, but also deceive them into unconsciously acting the role of bait to lure other unwary persons (particularly their friends and family members) into the same trap. 

• the impressive-sounding made-up jargon term, 'MLM,' is therefore, the misleading title for an enticing structured-scenario of control which has been developed, and constantly acted out asreality, by the instigators, and associates, of various copy-cat, major and minor, ongoing organised crime groups (hiding behind labyrinths of legally-registered corporate structures) to shut-down the critical, and evaluative, faculties of victims, and of casual observers, in order to perpetrate, and dissimulate, a series of blame-the-victim 'Long Cons*'  - comprising self-perpetuating rigged-market swindles**, a.k.a. pyramid scams (dressed up as 'legitimate direct selling income opportunites') and related advance-fee frauds (dressed up as 'legitimate: training and motivation, self-betterment, programs, recruitment leads, lead generation systems,' etc.).

• Apart from an insignificant minority of shills (whose leading-role in the 'Long Con' has been to pretend that anyone can achieve financial freedom simply by following their unquestioning example and exactly-duplicating a step-by-step-plan of recruitment and self-consumption), the hidden overall net-loss/churn rate for participation in so-called 'MLM income opportunities,' has always been effectively 100%.

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*A 'Long Con' is a form of fraud maliciously designed to exploit victims' existing beliefs and instinctual desires and make them falsely-believe that they are exercising a completely free-choice. 'Long Cons' comprise an enticing structured-scenario of control acted out as reality over an extended period. Like theatrical plays, 'Long Cons' are written, directed and produced. They involve leading players and supporting players as well as props, sets, extras, costumes, script, etc. The hidden objective of 'Long Cons' is to convince unwary persons that fiction is fact and fact is fiction, progressively cutting them off from external reality. In this way, victims begin unconsciously to play along with the controlling-scenario and (in the false-expectation of future reward) large sums of money or valuables can be stolen from them. Classically, the victims of 'Long Cons' can become deluded to such an extent that they will abandon their education, jobs, careers, etc., empty their bank accounts, and/or beg, steal, borrow from friends, family members, etc.

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** The enticing structured-scenario of control fundamental to all 'rigged-market swindles' is that people can earn income by first contributing their own money to participate in a profitable commercial opportunity, but which is secretly an economically-unviable fake due to the fact that the (alleged) opportunity has been rigged so that it generates no significant, or sustainable, revenue other than that deriving from its own ill-informed participants. For more than 50 years, 'Multi-Level Marketing' racketeers have been allowed to dissimulate rigged-market swindles by offering endless-chains of victims various banal, but over-priced, products, and/or services, in exchange for unlawful losing-investment payments, on the pretext that 'MLM' products/services can then be regularly re-sold for a profit in significant quantities via expanding networks of distributors. However, since 'MLM' products/services cannot be regularly re-sold to the general public for a profit in significant quantities (based on value and demand), 'MLM' participants have, in fact, been peddled infinite shares of their own finite money (in the false expectation of future reward). 

Thus, in 'MLM' rackets, the innocent looking products/sevices' function has been to hide what is really occurring - i.e The operation of an unlawful, intrinsically fraudulent, rigged-market where effectively no non-salaried (transient) participant can generate an overall net-profit, because, unknown to the non-salaried (transient) participants, the market is in a permanent state of collapse and requires its non-salaried (transient) participants to keep finding further (temporary) de facto slaves to sustain the enticing illusion of stability and viability.

Meanwhile an insignificant (permanent) minority direct the 'Long Con' - raking in vast profits by selling into the rigged-market and by controlling/withholding all key-information concerning the rigged-market's actual catastrophic, ever-shifting results from its never-ending chain of (temporary) de facto slaves.

Although cure-all pills potions and vitamin/dietary supplements, household and beauty, products have been most-prevalent, it is possible to use any product, and/or service, to dissimulate a rigged-market swindle. There are even some 'MLM' rackets that have been hidden behind well-known traditional brands (albeit offered at fixed high prices). Some 'MLM' rackets have included 'cash-back/discount shopping cards, travel products, insurance, energy/communications services' and 'crypto-currencies' in their controlling scenarios.

No matter what bedazzling product/service has been dangled as bait, in 'MLM' rackets, there has been no significant or sustainable source of revenue other than never-ending chains of contractees of the 'MLM' front companies. These front-companies always pretend that their products/services are high quality and reasonably-priced and that for anyone prepared to put in some effort, the products/services can be sold on for a profit via expanding networks of distributors based on value and demand. In reality, the underlying reason why it has mainly only been (transient) 'MLM' contractees who have bought the various products /services (and not the general public) is because they have been tricked into unconsciously playing along with the controlling scenario which constantly says that via regular self-consumption and the recruitment of others to do the same, etc. ad infinitum, anyone can receive a future (unlimited) reward.

I've been examining the 'MLM' phenomenon for around 20 years. During this time, I've yet to find one so-called 'MLM' company that has voluntarily made key-information available to the public concerning the quantifiable results of its so-called 'income opportunity'.

Part of the key-information that all 'MLM' bosses seek to hide concerns the overall number of persons who have signed contracts since the front companies were instigated and the retention rates of these contractees. 

When rigorously investigated, the overall hidden net-loss churn rates for so-called 'MLM income opportunites' has turned out to have been effectively 100%. Thus, anyone claiming (or implying) that it is possible for anyone to make a penny of net-profit, let alone a living, in an 'MLM,' cannot be telling the truth and will not provide quantifiable evidence to back up his/her anecdotal claims.

Although a significant number of 'MLM' front-companies (like 'Vemma', 'Fortune Hi-Tech Marketing', 'Wake Up Now') have been shut-down by commercial regulators, some of the biggest 'MLM' rackets (like 'Amway' ,'Herbalife', Forever Living Products' ) have continued to hide in plain sight whilst secretly churning tens of millions of losing participants over decades.

David Brear (copyright 2018)