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Herbalife is a pyramid scheme that harms millions of people around the world.
Few people who join Herbalife will ever make any money from the company.
Those who do, make money primarily from recruiting new Herbalife distributors, convincing them to buy product, and getting them to recruit even more distributors. Simply put, because Herbalife’s incentive structure rewards recruiting as opposed to retail product sales, Herbalife is a pyramid scheme. It lures in new distributors by promising riches and preying on entrepreneurial dreams but the truth is that 89% of Herbalife distributors will never earn a penny from the company.
Herbalife is a pyramid scheme that preys on would-be entrepreneurs around the world.
Claim: Recruiting isn’t the fundamental part of the growth of Herbalife
Truth: Herbalife CEO Michael Johnson has said that “recruiting is the fundamental part of the growth of this company” and “We’re still a recruiting company, and we’ve got to never not be”
Claim: If the company has been around for many years, it can’t be a pyramid scheme, it would have collapsed by now.
Truth: Pyramid schemes eventually implode when they run out of new victims to recruit. For large multi-national pyramid schemes, like Herbalife, which operates in more than 90 countries, the scheme continues as the company expands to new markets. As a result, it can take some time for the company to implode. Right now, Herbalife needs roughly 2 million new recruits per year to sustain its growth since so many people quit each year.
Claim: Distributors join Herbalife primarily for discounts on the products.
Truth: Herbalife has provided wildly different statistics when asked what percentage of distributors join to pursue the business opportunity or for a discount on the products.
- “We have two core, two core businesses. We have a business opportunity, which is why most of our distributors come here. They come here to look for a business opportunity.” (CEO Michael Johnson)
- “[D]iscount buyers . . . have signed up as distributors to enjoy a discount . . . are approximately 29%.” 10-K for 2010
- For “complete transparency,” for the full year 2011,“discount buyers were 27 percent.” 8-K filed May 2, 2012
- “Fact: 73% of Former Distributors Joined for Product Discounts.” Jan. 10, 2013 (Investor Day)
- “90% buy for one reason – self-consumption.” Jan. 10, 2013 (Michael Johnson Interview on CNBC)
Claim: Herbalife has changed its harmful practices.
Truth: The company has:
1. Banned lead generation
2. Changed its buyback policy
3. Modified the qualification thresholds for different positions in the plan
None of these changes address Herbalife’s compensation system or the business fundamentals that make it a pyramid scheme. To read more about this, click here
Claim: If there is a real product, it’s not a pyramid scheme.
Truth: Pyramid schemes often use products. Ponzi schemes don’t. The product is typically an overpriced commodity and is often incidental to the business opportunity, but the product itself exists.
Claim: Pyramid schemes pay for recruiting but Herbalife doesn’t.
Truth: Upline distributors get paid as soon as the distributor beneath them buys product from the company. That clearly incentivizes distributors to recruit and in turn, ‘pays them’ to recruit.
Claim: Third party surveys prove that Herbalife has retail customers.
Truth: Herbalife has the ability to track retail sales but it deliberately doesn’t do so. Instead, it has provided vastly different answers when asked what percentage of its sales are to retail customers outside the network.”
- May 1, 2012: “[W]e don’t have visibility to that level of detail. . . . So, well, again, going back to our 70% rule, we believe that it’s that 70% or potentially in excess of that.” (1st Q Conf. Call)
- May 2, 2012: “We don’t track this number and do not believe it is relevant to the business or investors.” (8-K filed with the SEC)
- December 19, 2012: Percentage of sales to buyers outside Herbalife’s distributor network? “90% – Absolutely.” (CEO Michael Johnson, CNBC Interview)
- January 10, 2013: 90% of sales outside Herbalife’s distributor network? “It was a misstatement.” (CEO Michael Johnson, CNBC Interview)
- January 10, 2013 and July 2013: Surveys suggest 5.7 million or 7.9 million people purchased HLF products in the prior three months. But HLF refuses to release the surveys and can’t say what products were supposedly purchased, in what quantities or at what prices.