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Herbalife: Potential Conflict of Interest Arises from The California Attorney General’s Office

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Herbalife Ltd. (HLF): Potential Conflict of Interest Arises from The California Attorney General’s Office by Quoth The Raven Research,

On Friday, a potential conflict of interest regarding Herbalife and the California Attorney General’s office may have gotten a push from “notable” to “alarmingly important”.

Back in late 2014, Quoth the Raven was the first to break that the California Attorney General may have a conflict of interest as it relates to Herbalife because she is married to a partner at Venable, LLP, a well known and reputable California law firm that has been retained by Herbalife as recent as 2013.

The California Attorney General has, in my opinion, done her constituency a fascinatingly horrific disservice by failing to either comment or act on a company domiciled in her state that the FTC recently deemed as “misleading” and a “business opportunity that rewards recruiting at the expense of retail sales”. Ipso facto, the FTC seemed to call Herbalife a pyramid scheme without using the terms. Other Attorney Generals, like Illinois’ Lisa Madigan have already sought and received restitution for victims.

The bar is significantly higher and more important for Kamala Harris in California. Why?

States like Illinois have no previous history with the company, whereas the California Attorney General has failed to enforce and act on an injunction that has already been in place in her state for 30 years, barring Herbalife from doing specifically what the FTC complaint alleges it has done: misrepresent themselves, make misleading income and health claims, and run an endless chain business focused on recruiting.

But wait, there’s more.

The Attorney General has not only failed to comment on the company at all, but she has failed to comment on her potential conflict of interest and she certainly hasn’t recused herself from her position – an action I would deem appropriate in order to fairly assess the 1986 injunction and perhaps take legal relief necessary to help victims in her state. Focus on California continues to get more prominent, as a recent consumer watchdog group wrote a letter trying to compel California to act on this injunction which was put in place 30 years ago specifically to prevent the harm that the company has caused over the last 30 years currently being addressed by the FTC.

But even that’s not the worst part.

As part of the recent FTC settlement, Herbalife needs to appoint an administrator to help audit their North American business and make sure that 80% of their sales are going to retail end users. This audit needs to be done by an objective body agreed upon by both the Federal Trade Commission and the company.

It was reported on Friday in the National Law Journal that there are many offices vying for the contract of independent administrator. Among those is once again – you guessed it – Venable, LLP. The same Venable that has been retained by Herbalife in the past, and the same Venable who has a partner married to the California Attorney General.

Now, I’ll state the obvious. By my standards, Kamala Harris has failed in her duties to enforce the 1986 permanent injunction and she has failed to remove the appearance of a massive conflict of interest. She could have shut this company down years ago, cutting the head off of a path of consumer harm detailed at length by the FTC’s recent complaint.

Choosing Venable, LLP as administrator to enforce the FTC’s recent settlement would be an inherently horrendous choice for the FTC because it is a firm that has been retained by the company in the past and it is clearly linked to the California Attorney General, whose inaction on this matter I can only describe as baffling and grossly negligent.

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