Herbalife Ltd. (NYSE:HLF) CEO Michael Johnson allegedly yelled at protestors outside a Los Angeles convention center on Friday where the company was holding a sales event for more than 12,000 Latino distributors, reports Svea Herbst-Bayliss for Reuters.
Herbalife’s unrealistic claims
The activists, who accuse the company of targeting minorities and vulnerable people with unrealistic claims about what Herbalife Ltd. (NYSE:HLF) distributors can expect, claim that some of the distributors who went to the convention spit at them and that Johnson said, “’You don’t know the facts. We don’t want to hear your lies. This is all lies. You should be ashamed of this.”
Several community groups had gathered at an event hosted by the League of United Latin American Citizens (LULAC) to urge California Attorney General Kamala Harris to take action against Herbalife Ltd. (NYSE:HLF).
“Herbalife is actively recruiting vulnerable, hard-working people into a get-rich quick pyramid scheme that generates virtually no income for most of its members,” said Vamos Unidos President Juan Jose Gutierrez. “Herbalife recruitment targets ethnic minorities with little to no business experience or ability to assess risk. Specifically, those within our community who want to live the American Dream.”
Dana Bostick’s lawsuit against Herbalife
Herbalife has had to defend its business practices both to the markets and in court recently. Former distributor Dana Bostick is suing them, alleging that it is an illegal pyramid scheme, and a court recently threw out Herbalife Ltd. (NYSE:HLF)’s motion to dismiss. Billionaire investor Bill Ackman has been shorting the company all year on the premise that it will eventually be shut down, dropping its share price to zero, while Carl Icahn has been investing in the company. Icahn acknowledges that some people may not like how Herbalife does business, but he doesn’t think there is anything illegal happening and believes the stock offers good value.
Herbalife sells health products, mostly supplements, through a large network of independent distributors who are rewarded for selling large volumes and are encouraged to resell downstream to other distributors. Allowing internal reselling between distributors isn’t enough for a company to be considered a pyramid scheme, even if some distributors get the short end of the stick. The fact that it’s possible to advance in the company without selling products and recruiting other people is an important distinction, and a major part of Herbalife Ltd. (NYSE:HLF)’s legal defense.
If Herbalife loses the Bostick case it would open the door to tens of thousands of similar cases around the country, possibly putting the company out of business. Even if it wins, there is the possibility that an ugly trial could hurt the company’s brand and scare off future distributors that are so important to the business model. But Johnson is confident that his company will be fine, saying that he expects his company to be around decades from now.