Herbalife Ltd. (NYSE:HLF) has been in the news a lot since December when activist investor Bill Ackman called it a pyramid scheme. One of the hallmarks of a pyramid scheme is if a company’s distributors make more money recruiting others than they do actually selling the product.
There seem to be conflicting reports about whether this is true with Herbalife Ltd. (NYSE:HLF), although one online publication uncovered shocking allegations about a real life Herbalife distributor.
The investigation was done by Haaretz’s Ayelett Shani, and it shares the story of Tzachi Gozali, who decided to become a distributor for Herbalife Ltd. (NYSE:HLF) not long after the company came to Israel. He adamantly denies all of the allegations made by the people interviewed in the article.
Gozali started selling products and began recruiting a lot of people to work underneath him. Then in 2003, he founded the GTEAM, his own organization which distributes Herbalife products.
Joining The GTEAM
According to the people interviewed for Shani’s story, the price of becoming part of GTEAM is NIS 18,000, which gives the person a “supervisor” rank. They claimed to be former team members and alleged that Gozali’s methods of getting people to join his team and continue working as part of it involve “humiliation, threats, incitement against friends and family, insistence upon celibacy, total control of members’ lives,” sex and more.
According to the allegations, Gozali appeals to potential team members with promises of being able to earn a lot of money without explaining exactly what they have to do in order to earn that money. Using pseudonyms to protect the identities of the alleged former team members who shared their stories, Shani reveals what they had to say about Gozali and his methods.
Responses To The Investigation
Gozali’s attorney responded to the story, denying everything that was in it and reserving the right to file libel suits against those who damage his reputation.
A spokesperson for Herbalife Ltd. (NYSE:HLF) has also responded to the story, emphasizing that its distributors are not employed directly by it and that if anyone has a problem with any of their distributors, they can contact Herbalife and it would do its “best to provide an appropriate response to his needs.”