Herbalife Ltd. Critics, Bulls Dig In Over FTC Probe Predictions

Herbalife

Herbalife Ltd. (NYSE:HLF)’s share price fell sharply after a Federal Trade Commission (FTC) probe into its business practices was made public, from $65 to a recent low of $49.5, but it has partially recovered since then, pushing toward $60, as Herbalife bulls argue that there is little chance of the government actually taking action against the company. But with no new facts from the FTC investigation, arguments largely hinge on what people thought before the probe began.

Herbalife short thesis based on business model, not products

As a recent example, Herbalife Ltd. (NYSE:HLF) bull John LaRosa recently wrote an article on Seeking Alpha that “the chances of the government shutting down Herbalife are zero,” arguing that the company’s products are safe, that there are other multi-level marketing companies in business that no one seems interested in shutting down, and that shutting Herbalife would be bad PR while unemployment is still high.

“I believe Mr. LaRosa has completely missed the point of the FTC investigation, and the results of the FTC action will likely prove that in the coming year,” wrote Seeking Alpha contributor Quoth the Raven in response.

While LaRosa goes to great lengths to argue that Herbalife Ltd. (NYSE:HLF) products are safe, the short position isn’t really actually concerned with the products themselves. People like Pershing Square’s Bill Ackman argue that the product is just meant to hide an illegal business model (and if there was any evidence that they were dangerous, no doubt he would have presented it by now). In theory the FTC isn’t supposed to be concerned with public relations, but it’s also true that there is a lot of pressure coming at it from both directions as vested interests lobby aggressively.

Dueling articles show both sides digging in

“Granted, the earnings are paltry, both on a part-time and full-time basis, with the exception of a lucky few that got in on the company in the beginning,” writes LaRosa, getting to the crux of the disagreement.

To critics, that sounds a lot like a pyramid scheme. They argue that the only way to be successful in Herbalife Ltd. (NYSE:HLF) is through recruitment, not through sales, and that this constitutes a pyramid scheme. Defenders mostly recognize that the rate of failure is high, but say that this is normal for any small business venture and that profits come from high sales, either from the distributor or from downlines.

Neither side has any more information than they did when the stock fell last month, but the price is rising again as bulls dig in.

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About the Author

Michael Ide
Michael has a Bachelor's Degree in mathematics and physics from Boston University and Master's Degree in physics from University of California, San Diego. He has worked as an editor and writer for several magazines. Prior to his career in journalism, Michael Worked in the Peace Corps teaching math and science in South Africa.

11 Comments on "Herbalife Ltd. Critics, Bulls Dig In Over FTC Probe Predictions"

  1. Not only that, but the $10k/year is gross profit, not net profit. The upline rips off the downline with the various “lead generation” scams. For more information, search this site using the key words “ackman-reveals-herbalife-ltd-targets”

  2. Pyramid, or MLM , I don’t care what its called, Herbal Life reported that over 90% of the distributors make less than 10K annually…and who knows if they actually made that or if they just earned that as a discount for using the product’s themselves. If you have a product and there is so little demand the only way to sell it is to sell a dream along with it….something isn’t right.

  3. Should be, but remember, we’re talking about the federal government. It’s difficult to overestimate the level of their incompetence. I don’t think we can ever say too much about scams like Herbalife, Amway, etc. (and it hasn’t stopped you on SA!), until they no longer exist. For more information regarding MLM scams like Amway and Herbalife, google “stop the amway tool scam wordpress”

  4. No, it means Herbalife hasn’t been caught yet, just like FHTM got shut down last year after being around for a dozen years. But I’m sure the UK regulators, and others around the world, are keeping an eye on the current investigations by the FTC/SEC and class action court cases(s) in the U.S., if not starting to investigate already, you’re welcome Rene.

    Of course Herbalife has a problem with enough customers, most MLMs do. It happens when a company tries selling mediocre products for highly inflated prices. Herbalife also has a problem with their own version of Amway’s Tool Scam, and shutting it down only AFTER being criticized (with the results being questionable) doesn’t erase past abuses. In fact, it proves Herbalife was guilty for a few decades.

    Too bad Herbalife won’t release the method and assumptions that went into that “survey.” LOL

    Typical Herbalife/MLM tricky wording. A fake customer making a small purchase compared to the masses of distributors making huge purchases to buy a larger discount proves my point. Thanks, Rene.

    The majority of club sales are to other distributors. Ackman himself points to former distributors trying to get a few pennies for their dollars spent by selling on eBay.

    So your “logic” is full of lies, if not bull excrement.

    Oh, yeah. The readers are reminded you STILL haven’t answered my questions, which is typical of an MLM scammer. Just ignore the questions and try to change the subject. It didn’t work, Rene. Dirtbag.

  5. So, in the UK Amway had to make some changes in 2008 and HLF didn’t. That speaks volumes that HLF is a legal MLM, thanks Tex2.

    Your observation “The USA requires retail sales to non-participants, and the EU doesn’t.” Do you think HLF has a problem with enough customers? LOL

    See the survey results from Lieberman Worldwide Research and Nielson that have been release by Herbalife. “Fact: 92% of 8 Million Consumers That Purchased the Product in the Last 3 Months are Non-Distributors”

    Herbalife stated that “31% of the orders in the U.S. were directly shipped to non-Distributor customers in fiscal year 2012” (page 50 Jan 10, 2013
    investor day presentation).

    The majority of nutrition club sales are outside the distribution channel. Ackman himself points to sales outside the distribution channel is on the internet.

    So your logic is flawed because of lack of facts and DD.

  6. Quoth the Raven | Apr 10, 2014, 8:16 pm at 8:16 pm |

    HLF should be the biggest slam dunk for FTC in the FTC’s history. Nuff said.

  7. Interesting, Amway had to make some changes in the UK in 2008, BUT HLF had no problems there, thanks for bolstering HLF’s position as a legal MLM in the UK.

    Now, regarding your other question “The USA requires retail sales to non-participants, and the EU doesn’t.” Do you think HLF has a problem with lack of customers? LOL

    See the
    survey results from Lieberman Worldwide Research and Nielson that have
    been release by Herbalife. “Fact: 92% of the 8 Million Consumers That Purchased the
    Product in the Last 3 Months are Non-Distributors”

    Herbalife
    stated that “31% of the orders in the U.S. were directly shipped to
    non-Distributor customers in fiscal year 2012” (page 50 Jan 10, 2013
    investor day presentation).

    The majority of nutrition club sales are outside the distribution channel.

    Ackman himself points to sales outside the distribution channel on the internet.

    So your logic is flawed because you ignore the facts.

    Lieberman study results are in this presentation: http://bit.ly/PPwoVN

  8. Yes, and I just got through describing the difference. The USA requires retail sales to non-participants, and the EU doesn’t. Be aware the UK is NOT part of the EU, and almost kicked Amway out in 2008, and one of the new requirements Amway had to agree to to stay in the UK is every single IBO (referred to as ABOs in the UK) are required to have a minimize amount of retail sales BEFORE they are allowed to sponsor anybody.

    Therefore, the EU countries are NOT more strict on customer exploitation, at least in this regard, than laws in the U.S.

    My questions don’t apply to legitimate businesses, they apply to MLM scams.

    Since you didn’t respond to my questions, I’ll take your answers as yes, yes, and yes. LOL

    The answers to your questions are yes, and yes. LOL

  9. Hey tex2,

    Can you tell us any difference between Europe and USA laws regarding legal or illegal MLM’s?
    As part of the European Union, Belgium laws are also EU laws. The EU countries are even more strict on customer exploitation than laws in US.

    When you apply your questions to “any business venture, to any university program or to any sale job” you’ll see how ridiculous your question are.
    Have you ever worked as a salesperson? Owned your own business?
    If you don’t answer, we’ll take your answer as NO. LOL

  10. Rene, the United States of America is not Belgium, and Belgium is not the United States of America. The United States of America Securities and Exchange Commission, the Federal Trade Commission, and numerous court cases in the UNITED STATES OF AMERICA have determined retail sales to non-participants are required to keep an MLM from being an illegal pyramid.

    Herbalife recently made several changes to their return policy, but ONLY because of Ackman looking behind the curtain and asking questions. Do members returning products still have to show their retail records before being reimbursed? Do you agree getting money back on products is only part of the money spent while trying to grow an Herbalife MLM scam business? Do you agree Herbalife can’t give a person their lost time back while trying to grow an Herbalife MLM scam business? I’ll consider a non-response from you as Yes, Yes, and Yes. LOL

  11. HLF does not have inventory loading and they do not pay to recruit new members. BUT, HLF does have MILLIONS of satisfied customers & an excellent product return policy.

    HLF’s return policy:
    1- HLF gives customers 30 day full money guarantee refund, if not satisfied for any reason.
    2- HLF gives new members 90 day full money guarantee refund, if decide business is not for them. No need to return anything to HLF.
    3- HLF gives resigning distributors 1 full year guarantee refund on all products returned in good condition. No shipping charges either way.

    The Belgian Court concluded HLF is in complete compliance with the law. “All products sold by HLF are accounted for.
    Products are bought by members, sold to customers or returned
    (by members or customers) to HLF for a refund.

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