Coalition to Stop Herbalife Ltd. (NYSE:HLF): letter to National Association of Attorneys General (NAAG)’s President & Mississippi Attorney General Jim Hood.
Coalition to Stop Herbalife’s Letter to Jim Hood
June 19, 2014
National Association of Attorneys General (NAAG)
NAAG President & Mississippi Attorney General Jim Hood
2030 M Street NW, 8th Floor
Washington, D.C. 20036
Dear Attorney General Jim Hood:
We write to ask that the members of the National Association of Attorney Generals take immediate action to protect thousands of vulnerable people in their states from the deceptive practices of Herbalife, a multi-level marketing company that we believe is actually a pyramid scheme. Herbalife Ltd. (NYSE:HLF) recruits hundreds of thousands of people a year in the United States into a “business opportunity” using testimonials that feature six and seven figure incomes and lavish lifestyles. Yet the vast majority of new Herbalife distributors lose money and 90% of them quit within a year of signing up.
Last February, dozens of Latino and consumer advocates gathered in Washington, D.C. to meet with the Federal Trade Commission (FTC) about this issue. In March, the FTC issued a Civil Investigative Demand to Herbalife and is actively investigating the company. The FTC is taking seriously our allegations that Herbalife is using unfair and deceptive acts and practices to recruit new distributors in the United States on a massive scale.
The FTC did not enter into this issue lightly and they are opening a full investigation into the claims against Herbalife Ltd. (NYSE:HLF). While the FTC investigation is an important step in protecting our community, we strongly urge NAAG and attorneys general from across the country to join this effort. Pyramid schemes are among the most insidious and damaging consumer frauds facing our communities and we believe that they are one of the significant causes of income inequality in the United States because they often target low income people.
Many attorneys general have expansive consumer protection powers, and with hundreds of thousands of potential victims at stake, we are urging you to join with the FTC, the Securities and Exchange Commission (SEC), the Federal Bureau of Investigation (FBI), the Department of Justice (DOJ) and your colleagues New York Attorney General Eric Schneiderman and Illinois Attorney General Lisa As you may know, Herbalife Ltd. (NYSE:HLF) is a six billion dollar multi-level marketing company that sells supplements of dubious nutritional value. Yet former distributors and victims of this pyramid scheme have repeatedly told us that the only way a distributor can successfully make money in Herbalife is to recruit hundreds, if not thousands, of other people to become distributors underneath them rather than through retail sales…one of the hallmarks of a pyramid scheme. Herbalife now claims that 73% of its distributors are merely discount customers – just like Costco or other buyer’s clubs. Yet every year, the vast majority of Herbalife’s distributors do not renew—unusual behavior for a buyer’s club in our opinion.
Herbalife has also refused to provide any data about its retail sales, even though all traditional consumer product companies and even legitimate multi-level marketing companies track this information rigorously. According to the company’s own Statement of Average Gross Compensation Paid by Herbalife Ltd. (NYSE:HLF) to U.S. Members in 2013, 88% of Herbalife’s distributors earned no payments from Herbalife in 2013, and only 0.47% received more than $25,000 for the entire year gross. Factoring in operating expenses, the vast majority of Herbalife’s distributors lose money even after working long hours, full time. Although Herbalife tells consumers that it is the “best business opportunity in direct sales” and a chance to “achieve their dreams and financial freedom” while working from home, the reality is that almost none of their distributors make a net profit by actually selling Herbalife’s products.
We are also deeply concerned that Herbalife targets minority and new immigrant communities with their business opportunity pitch, knowing full well, that these communities are the least likely to complain to NAAG members after losing money to the scheme. The company has created videos, marketing materials and recruiting events tailored to specific minority communities and even hosts a nationwide “Latin Extravaganza” every year that draws over 10,000 Latino recruits. The company even admits that 60% of its U.S. distributors filled out the Spanish language version of its distributor application, but it doesn’t report the additional percentage of U.S. distributors who are English speaking Latinos or African American.
In addition to business opportunity fraud, we believe Herbalife Ltd. (NYSE:HLF) distributors routinely make false medical claims about their supplements through testimonials and even go so far as to prescribe Herbalife products for medical conditions such as diabetes, cancer, anemia, etc.
Finally, we think the bizzaare rules governing Herbalife’s nutrition clubs which prohibit club owners from displaying the Herbalife logo on the outside of the store, posting prices for their products, having an open/closed sign, having the club’s interior visible from the outside and advertising are an effort by the company to create the false impression that these clubs are not retail food establishments in order to skirt the business, health code and franchise laws that NAAG members enforce.
As Latino and community advocates, we cannot stand by while Herbalife Ltd. (NYSE:HLF) continues to deceive hundreds of thousands of people every year. We are actively assisting regulators and law enforcement agencies who have already announced investigations into the company when requested; however, the scope of this fraud demands much wider action.
We respectfully ask that the members of the National Association of Attorney Generals take immediate action in their states to investigate Herbalife and determine if the company is violating state laws and regulations and if so to take the appropriate actions to address these violations and to protect the residents of your states.
Thank you for your consideration of this important matter. Please let us know if you would like to receive more information about our concerns or have any questions.
The Coalition to Stop Herbalife and affiliated members
Brent Wilkes, League of United Latin American Citizens, Executive Director
Amy Hinojosa, MANA- A Latina Organization, Executive Director
Yanil Terón, Center for Latino Progress, Executive Director
Angelica Salas, Coalition for Humane Immigrant Rights of Los Angeles, Director
Adrian Dove, Congress of Racial Equality California
Mayra Esquilin, Hartford Areas Rally Together, Executive Director
Omar Duque, Illinois Hispanic Chamber of Commerce, President and CEO
Andres Mendoza, League of United Latin American Citizens – Nevada, Deputy Director
August Sallas, Little Village Community Council, President
Horace Small, Union of Minority Neighborhoods, Executive Director