Klein & Moya urge Federal Trade Commission to take serious action against Herbalife International
As probe of multi-level marketing company comes to an end, legislators write to FTC Chairwoman to protect consumers from financial harm
Albany, NY — Senator Jeff Klein (D-Bronx/Westchester) and Assemblyman Francisco Moya (D-Jackson Heights) on Wednesday wrote to Federal Trade Commission Chairwoman Edith Ramirez to urge that federal regulators probing Herbalife International consider injunctive relief that includes sweeping reforms to the multi-level marketing companies business models to shield consumers from financial harm and fraud.
The FTC has been investigating Herbalife International and is reportedly near to announcing a resolution in the probe. Hundreds of former Herbalife distributors have submitted complaints to state and federal authorities, each after losing thousands of dollars to the company.
Senator Klein and Assemblyman Moya recommended that the FTC require Herbalife to document and disclose its retail sales to participants who are not in the distributor network, and release the average income and commissions earned by independent distributors.
“Herbalife should also be required to disclose to the public where nutrition clubs are located and provide regulators proof that these businesses comply with state and federal labor laws. Additionally, rewards designed to incentivize recruitment (e.g. Production Bonus) and the product purchasing requirements that encourage so-called inventory loading should be removed immediately,” Klein and Moya wrote.
Klein introduced legislation to protect consumers against multi-level marketing companies like Herbalife and level penalties against such companies that employ deceptive practices. Assemblyman Moya recently introduced companion legislation.
In New York City, Herbalife nutrition clubs are located in predominantly Hispanic neighborhoods. Lured by the promise of a “great business opportunity” where the American Dream of entrepreneurship is glamorized through testimonials where sellers say they earn millions, live in mansions and take extravagant trips, many wind up losing their life-savings.
Through a series of undercover investigations and victim interviews, Senator Klein has exposed Herbalife as a pyramid scheme, where distributors desperately try to climb up a ladder as they continue to invest.
Klein and Moya’s legislation would increase transparency, educate consumers and impose penalties on companies that do not comply with the law.
Klein & Moya’s Letter to Federal Trade Commission Asking to Take Serious Action Against Herbalife International
The Honorable Edith Ramirez
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20530
Dear Chairwoman Ramirez,
In light of recent news reports that the Federal Trade Commission may be nearing a resolution to its investigation of multi-level distribution company Herbalife International, we urge you to consider that any measure of injunctive relief include significant reforms to Herbalife’s business model to protect consumers and prospective distributors from the financial harms and deceit documented in hundreds of complaints submitted to state and federal authorities.
Such reforms include the documentation and disclosure of retail sales to participants not in the distributor network, and the average income and commissions earned by distributors at each level. Herbalife should also be required to disclose to the public where nutrition clubs are located and provide regulators proof that these businesses comply with state and federal labor laws. Additionally, rewards designed to incentivize recruitment (e.g. Production Bonus) and the product purchasing requirements that encourage so-called inventory loading should be removed immediately.
A number of these measures mirror the multilevel distribution company legislation (S.6983 and A.10244) we introduced that would strengthen financial reporting requirements of multi-level distributors operating in New York State, urge these companies to better support their participants to prevent fraudulent and deceptive acts, and grant the Attorney General the right to impose penalties against violators. But strong federal action must be taken to fully protect consumers and prospective entrants from the predatory behaviors that have come to define companies like Herbalife.
Were Herbalife to escape federal scrutiny with a fine and few requirements to alter its business structure it would be a major step backwards in the FTC’s efforts to hold accountable bad actors in the direct selling industry, let alone disservice those who have been harmed by this company. We owe it to these people to prevent such an outcome.
Our thanks to you and your staff for your hard work and attention to this important matter.
Jeffrey D. Klein
34th Senate District
New York State Senate
Francisco P. Moya
39th Assembly District
New York State Assembly
See full PDF below.