[Question] Is Herbalife a Pyramid Scheme?

[Blurock]

Hedge fund manager Bill Ackman says Herbalife is a pyramid scheme that preys on the working poor. He has taken a $ 1 billion negative bet against the company.

Ackman argues that Herbalife’s business model is a pyramid scheme as defined by the Federal Trade Commission which states that participants make money primarily by recruiting others, rather than through the sale of goods and services.

http://en.wikipedia.org/wiki/Herbalife

The Wall Street Journal reported that the U.S. Securities and Exchange Commission’s enforcement division opened an investigation into Herbalife Ltd.
Following a number of investigations and a class action paid out in USA in 2004, the Commercial Court in Brussels, Belgium in Nov 2011 ruled that Herbalife was an illegal pyramid scheme. Is this not how all MLM companies operate?

[Didditmiself]

I think whichever way you look at it, if it depends mainly on how many 'mugs' you manage to recruit, then it is a Pyramid scheme. The products are there to disguise the deception that takes place. Two other companies spring to mind: Golden Life Products (now called Golden Life Neo Dyamite (not Dynamite) and Amway. The products are hellishly expensive and the emphasis on day-one is recruitment, recruitment. Sell, sell is less important. The ones who really 'cream it' are the ones at the bottom of the Pyramid and until you've reached that level by selling new 'memberships' you earn commission on the products you sell and very little from the few members you have recruited i.e. if they sell only a bit, you earn only a bit, insofar as both new member sales' and product sales' are concerned. And don't forget the startup costs (which typically cost around R1500) are for your account as well. And if I remember correctly, tickets for any conferences or conventions they have, are for your account also. So yes, in my opinion, Blu, Herbalife is a Pyramid scheme with hellishly expensive products.

[Blurock]

I've attended an MLM recruitment presentation where I quickly realised that all is not so kosher. I was firstly not informed about the purpose of the meeting (you never are) and I had to be interviewed by one of the senior members. The recruiter was not allowed to tell me about the organisation.

The more I wanted to know about the products and their benefits, the more I was told about how I can benefit from having people below me and the different levels in the organisation. I had to buy an information and training pack and was also invited to a convention at Sun City (at a cost of course) where more motivation would be provided.

Needless to say I declined. If you are not on top of the pyramid yourself, you only end up funding the guys on top.

[Didditmiself]

Blu, I forgot to mention something else yesterday; as far as I remember, there is also an annual "membership fee" which is payable at the beginning of the year. It makes no difference how much you sold or whether you sold f/a, it is part of the t & c's when you sign up to sell their stuff. So even if you sell virtually nothing, if they have say 1000 members X R250 per year, they get to collect R250K in any case. I rest my case.....

[Blurock]

Blu, I forgot to mention something else yesterday; as far as I remember, there is also an annual "membership fee" which is payable at the beginning of the year. It makes no difference how much you sold or whether you sold f/a, it is part of the t & c's when you sign up to sell their stuff. So even if you sell virtually nothing, if they have say 1000 members X R250 per year, they get to collect R250K in any case. I rest my case.....

Yes, membership fees will depend on the level you are operating on. If you pay a higher amount, you automatically have more people below you and you can then potentially earn more. You also have to buy promotional videos and training material for which you pay. You pay to attend conferences. These are held quarterly at different venues all over the country, so you have to travel to get there and sleep over as well. All at your expense. You have to pay to attend meetings once a week. If you have a guest to introduce (that's what the meetings are all about) you end up paying for them too - and buying the coffee.

The way I see it, it's like gambling; you hear all about the winnings, but never about how many times they have lost. People that are in the system will not admit that they are actually losing money to the guys on top. They believe that they are doing something wrong and are not working hard enough. They believe that they only have to recruit more people so that they can earn more. Product sales are not so important and commission will be generated by new recruits.

[Dave A]

A speculator places a bet that the share price of Herbalife is going to fall, then proceeds to very publicly slate the company....

Who's the real shyster here?

[Blurock]

A speculator places a bet that the share price of Herbalife is going to fall, then proceeds to very publicly slate the company....

Who's the real shyster here?

Also unethical as far as I am concerned, but he did refer to facts in his rants. Herbalife has been involved in a number of court cases alleging pyramid schemes, some of which were bought by its own members. http://en.wikipedia.org/wiki/Herbalife

• West Virginia class action suit filed on July 16, 2003, Mey v. Herbalife International, Inc., et al

• A 2004 settlement resolved a class action suit on behalf of 8,700 former and current distributors that accused the company and distributors of "essentially running a pyramid scheme." A total of $6 million was to be paid out, with defendants not admitting guilt.

• In a California class action suit filed on February 17, 2005, Minton v. Herbalife International, et al., the plaintiff is "challenging the marketing practices of certain Herbalife International independent distributors and Herbalife International under various state laws prohibiting "endless chain schemes", insufficient disclosure in assisted marketing plans, unfair and deceptive business practices, and fraud and deceit".

[Dave A]

Don't confuse settlements with judgements - especially when it comes to settlements in the USA.

The hard truth is as long as the company is only paying out on product sales and not paying out for signups, it can't be a pyramid (ponzi) scheme.

[Blurock]

Don't confuse settlements with judgements - especially when it comes to settlements in the USA.

The hard truth is as long as the company is only paying out on product sales and not paying out for signups, it can't be a pyramid (ponzi) scheme.

On 23 Nov 2011 the Belgian Commercial court ruled that Herbalife is a pyramid scheme (case no A.R.2004/7787)

The court states that Herbalife is in breach of articles 91, 4 and 99 of the Act regarding market practices and consumer protection because it has established, managed or promoted a pyramid scheme, whereby the consumer or a business stands to make money which is more likely the result of introducing new consumers or businesses into the scheme than from the sale or use of products.

The court papers also give details regarding the operation of the scheme which it has found to be a pyramid scheme.

[Dave A]

On 23 Nov 2011 the Belgian Commercial court ruled that Herbalife is a pyramid scheme (case no A.R.2004/7787)

Ouch!

[OnePilot]

I am interested to find out if this MLM Industry Forum is for bashing MLM and the concept of Network Marketing or to debate and promote opportunities? and how many of the bashers have actually participated in the industry

[Sharron]

Hi
I dont belong to Herbal Life ..
it is not a pyramid scheme as they sell products.
They recruit people in there group to also sell & then they earn a commision or higher discount structure.

Not exactly sure how Herbalife compensation plan works.

But pyramid scheme is when there is no stock
you recruit & money from recruits subsidizes whatever they promise

And then eventually it falls flat brcause the cannot keep up with the scam
Herbal Life has been around for many years.

Just my comment I work for Avon Justine as a Sales Manager which is also a MLM company over 150 years old
I am a salary employee .. but am very much trying to get my slimming product business going.

Regards
Sharron

[Blurock]

@Sharron & OnePilot, I suggest you read the thread again.

On 23 Nov 2011 the Belgian Commercial court ruled that Herbalife is a pyramid scheme (case no A.R.2004/7787)

This is a comment on a recorded fact. It is not thumb sucking or bashing any one. Do not expect to find the answers in life if you are not prepared to ask the important questions. The truth will always prevail.

[vieome]

Fact herbalife does sell products. Fact there is a huge drive to recruit new members, who on joining must pay a fee. The real scam here is in the joining fee, because they are essentially selling over priced , I mean way over priced vitamins. So one pays to join and soon finds out that they cant sell the product. So you leave the scheme and lose your joining fee. It may not be a clear cut pyramid scheme, but a more evolved pyramid scheme, and I am sure that these type of companies will soon be the new type of pyramid scheme. It would appear that more pyramid scheme runners are doing this, attaching themselves to weak or expensive un-proven products. We had defence x attaching itself to EFT. In herbalife case it is strange that people pay for membership to sell the product hoping to make loads only to discover, that their potential clients can get the product from herbalife website for the same price wholesale price.

[Rafael]

I have a friend that has joined Herbalife recently and basically contacts me every day asking me to go see him, as I can create more wealth for myself.

I've just started to ignore his calls