Herbalife Ltd. (HLF): Questionable Distributors To Capitol Hill

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Herbalife Ltd. (NYSE:HLF) has lobbied heavily against Bill Ackman and others who claim it is a pyramid scheme—an accusation it has vigorously denied. The nutritional supplements company is now continuing its efforts by bringing 15 of its distributors from six different states to Washington to talk with lawmakers. The company said the goal is to ensure that lawmakers “understand the value Herbalife brings to thousands of its Members and consumers across the country.” However, the distributors the company has chosen to send may be questionable to some.

Herbalife distributors accused of misleading statements

The Federal Trade Commission, the FBI, the DoJ and attorneys general in multiple states have reportedly launched investigations into potentially misleading financial promises allegedly made by Herbalife Ltd. (NYSE:HLF) distributors. As it turns out, some of the very distributors who seem to be making these misleading statements are going to be speaking with lawmakers. In a press release, Herbalife named Brian Holifield as one of the people who is visiting Washington on its behalf.

For example, a YouTube video shows that Herbalife Ltd. (NYSE:HLF) distributor Brian Holifield made statements such as, “I went from broke, not having any money, no gas in the car to $8,000 a month a year and 5 months later.” In the video he also said, “I make over $30,000 a month. … I went from broke with no gas in the car to $30,000 a month.”

Herbalife’s internal figures tell a different tale

The problem with statements made by Holifield in the YouTube video is that they paint a significantly different picture from the one shown in Herbalife Ltd. (NSE:HLF)’s own documents. The multi-level marketing company posted its “Statement of Average Gross Compensation Paid By Herbalife to U.S. Members in 2013” on its website. It’s clear from those numbers that Holifield’s story isn’t typical.

In that document, Herbalife Ltd. (NYSE:HLF) states, “For the 13.6% of Herbalife Members who are Sales Leaders with a downline, the average compensation received from the Company in 2013 was (USD) 5,381.” It also states that that amount is before operational and promotional expenses, which means that the stories of people losing a lot of money by signing up do appear to be true.

The document also states that 93.5% of those who are classified as “sales leaders with a downline” make $10,000 or less a year—a far cry than what Holifield said he makes. Herbalife Ltd. (NYSE:HLF) emphasizes that 73% of distributors sign up to receive discounted prices for products they buy for themselves. The company also said that for 88% of those who sign up, “the economic benefits” were only from the discounted prices the members received on the products they purchased, which did not take the form of a payment.

What will the Herbalife reps say?

So now it’s worth questioning what lawmakers will ask the 15 distributors Herbalife Ltd. (NYSE:HLF) has sent to Washington to speak with them. Will they provide a breakdown of their earnings in commissions and retail sales? Will they list their expenses and say how much of the products they sell to people outside the network? Will they also say how many people are in their downlines and what their net profits are?

All of these questions are important in the consideration of whether Herbalife Ltd. (NYSE:HLF) is a pyramid scheme. Also the fact that Herbalife’s own documents show how little most distributors make is a clear departure from statements some distributors have apparently been making.

See full Herbalife Ltd. (HLF): Questionable Distributors To Capitol Hill in PDF format here.

Herbalife: Questionable Distributors To Capitol Hill

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