Business

Herbalife CEO Saw Signs Of “Pyramiding” Early On [REPORT]

Herbalife CEO Michael Johnson saw signs of pyramiding in the company early on, according to a report from Michelle Celarier of the New York Post.

The Post allegedly obtained a video of Johnson’s speech in 2005 showing him criss-crossing a big stage while criticizing the business practices of Herbalife and imploring the management to implement changes.

Johnson was just two years in his position when he made his bold speech against the business practice of Herbalife, which sells weight-management shakes through a multi-level marketing network.

Prior to joining Herbalife in 2003, Johnson served as president of Walt Disney International.

Johnson said success in Herbalife was like a “lottery ticket”

According to the Post, Johnson was tanned and fit and dressed in a black polo shirt & slacks when he made his impassioned speech about Herbalife during the company’s global management retreat in Laguna Beach, California in 2005.

In the video, Johnson said achieving success in Herbalife was similar to a “lottery ticket.” He emphasized that only a few people are reaching the top level. He noted that the company’s distributors were sometimes engaged in false promises, claims, in hopes for product, for money, for recruiting, for customers, for pyramiding.”

Johnson noted that the sales strategies used by “top dog” Herbalife distributors sometimes led people “down a false road” where a $4,000 could purchase an “instant distributorship.

Johnson even said, “When the credit card bill comes, the spouse says, How are we going to pay this? You didn’t sell this stuff. It’s in the garage. It’s in the pantry. What are we going to do?” According to him such practices led to complaints that Herbalife was a pyramid scheme.

Herbalife Ltd. HLF

Johnson urged Herbalife management to operate with ethics

Johnson also pointed out that he does not want to go to jail because of the wrong business practices of the company. He encouraged the management of Herbalife to operate the business with ethics.

He said, “You guys gotta do things right because Rich [Goudis, then Herbalife’s CFO] and I have one major job … to stay out of jail. We go to the gray bar hotel together if you don’t operate with ethics.”

At the time, Johnson also reassured Herbalife distributors that recruiting, which made them multimillionaires would remain the “most vital part of our bloodstream.”

Legal experts believe that Johnson’s statements in the video could provide a blueprint in the ongoing investigations of the Department of Justice (DOJ), Federal Trade Commission (FTC) and the Securities and Exchange Commission (SEC).

Richard Holwell, a former federal judge and currently in private practice commented, “It could be a critical document.”

Bill Ackman of Pershing Square Capital Management accused Herbalife of operating a pyramid scheme. Herbalife denied his accusations. The company also claimed that it implemented measures to address the issues raised by its CEO.