Herbalife Ltd. (NYSE:HLF) has been particularly active today, trading up 9 percent. While there are some who cannot get enough of Herbalife, the Latinos are not so happy with the nutritional supplements company. The Hispanic Federation wrote to FTC on Friday, seeking an investigation into Herbalife Ltd. (NYSE:HLF), saying that they had concerns about the company’s business model.
The letter asks for a probe into the way the company promises huge gains for the distributors but in reality they end up losing money. The letter alleges that Herbalife’s marketing campaign lures immigrants into buying its products with the promise of big money by working only a few hours at home, but says that the real picture is different.
The Hispanic Federation expresses its concern over the confusion on how Herbalife’s distributors make money. It emphasizes that if the distributors are supposed to earn profits by recruiting more distributors then that is an indication of a pyramid scheme. Hispanic Federation’s President, Jose Calderon was also not excited about the way “get rich” schemes particularly target immigrants. In particular, Calderon asks for the resolution of this question, “Are distributors incentivized to sell products or to recruit new distributors into the pyramid?“. The letter urges FTC to probe into the matter and see if this multi-level marketer is a legitimate business.
Herbalife’s biggest enemy, Bill Ackman has previously also claimed that Herbalife Ltd. (NYSE:HLF) sells financial hope and focuses on financially vulnerable and unsophisticated, including stay-at-home moms, minorities and college students. A story published in LA Times in February said that 60 percent of Herbalife’s US revenue came from Latinos. In most of its public meetings and conference calls, the subject of Herbalife’s Latino business has been discussed thoroughly, and it is clear that it is a consumer group where Herbalife’s sale strategy focuses.
The company’s management has denied that it targets a specific demographic which is strange as Herbalife’s own VP-Investor Relations, Amy Greene, at one point said, ” the African-American initiative that we’re doing, it started about three years ago. ” Additionally the company frequently refers to terms like, Latino market, Latino business, etc.
However, Herbalife Ltd. (NYSE:HLF) targeting a particular population in its marketing campaign is not as big of an issue since advertising is usually directed at a target audience. The bigger question is how distributors of these nutritional supplements are meant to earn profits.
The full letter to FTC is embedded below.