Dear Team Herbalife,

Today is a very sad day for us all. Founder’s Circle member, John Peterson passed away suddenly today, following a tragic accident at his home in Steamboat Springs, Colorado.

The Herbalife family has lost a dear friend, an inspirational leader, and a loving husband and father of John Jr., Jennifer and Bryan.

John occupies a special place in Herbalife as one of our original Founder’s Circle members, and we spare a special thought for his business partner of many years, Susan.

There can be very few Distributors around the world who have not been inspired by his story or benefitted from his experience and knowledge; something he was always so generous with and willing to share.

John was one of Herbalife’s true personalities and he will be missed.

-Herbalife CEO, Michael Johnson

herbalife-logoDespite it being referred to as a “tragic accident” by Herbalife in the above email sent out last Monday, news broke today that Herbalife top earner John Peterson’s death was infact suicide.

Peterson was found inside a 2008 Ford pickup parked at his residence in Steamboat Springs, Colo., where he “succumbed to a single gunshot wound,” said Ray Birch, undersheriff for Routt County. Birch said the initial investigation indicated the gunshot was self-inflicted.

What caught my interest was not the suicide itself, which by all accounts was unremarkable, but rather the environment surrounding it. When I read that Peterson’s death was suicide, immediately the question of whether or not it had something to do with Herbalife came up.

To start with, let me say that trying to link any of this with Wall Street theatrics is a futile effort and I’m glad to say that to date, Peterson’s death hasn’t been used by either side of the stock market battle. Let’s hope it stays that way.

On the MLM side of things however, after reading it was a suicide I began to research some immediate thoughts I had and now, a few hours later, despite some pretty large pieces of information missing, think there might be a bit more to this story than we’re being told.

In response to Ackman’s claims the company is a pyramid scheme, Herbalife made an abrupt announcement earlier this year that it would no long tolerate its affiliates selling leads to other affiliates.

The problem?

Many of the company’s top affiliates had been making a killing selling such leads for the better part of a decade.

Before we get into his Peterson’s involvement in the now banned practice though, let’s take a step back and look at how two of Peterson’s fellow affiliates responded to Herbalife’s decision.

Prior to Herbalife’s ultimatum that its top affiliates stop selling leads to their downlines by June 30th, one of Herbalife’s top distributors, Anthony Powell, severed ties with the company and urged his downline to join him in Vemma.


Barb Henderson, spokeswoman for Herbalife, explained

Anthony Powell’s stated focus is on creating ‘explosive growth’ fueled by lead purchases.

As he has also stated, this is ‘a difference in philosophy,’ not consistent with Herbalife’s focus on building business through the daily consumption of our nutrition products.

Put simply, Powell was far more interested in recruitment affiliates than selling products to retail customers. In the midst of very public allegations that Herbalife was a pyramid scheme, someone obviously decided Powell’s business practices couldn’t continue unchecked.

When he left, Powell strongly encouraged his massive downline to follow him, offering them “free entry” into Vemma if they did so.

The damage to Herbalife?

Herbalife’s US sales growth was cut nearly in half due to (Powell’s) departure and related business changes.

Related business changes of course being the polite expression for what happens when a top affiliate takes the bulk of their downline with them into another company.

With just under half of their business volume vanishing overnight, Herbalife’s official response seemed awfully cool:

The loss of business from Powell’s departure won’t have a material impact on Herbalife’s 2013 guidance.

More on that later.

With Powell long gone, Herbalife made the official “no more selling leads” announcement in April, prompting yet another top-earning affiliate to jump ship.

Shawn Dahl — one of the elite Herbalife distributors in the so-called “Chairman’s Club” — and some of his sales recruits are jumping to Nutrie, a competing diet protein shake peddler.

His status at Herbalife has been in doubt since the company banned its distributors from buying sales leads and other marketing materials from Online Business Systems, run by Dahl.

And whereas Powell’s resignation was somewhat of a publicly amicable affair, this time around there was an undercurrent of seething tension directed at Herbalife:

Earlier this month, calls and e-mails obtained by The Post involving Dahl and another top Herbalife distributor, Tanya McDowall, indicated they were recruiting Herbalife distributors for Nutrie.

“We’ve experienced some really turbulent times over the past six months,” McDowall told a group of Herbalife distributors on one call.

She said that the company had “handcuffed” them, but she promised they could continue their Herbalife business as they moved over to Nutrie.

By “Herbalife business” McDowall is of course referring to the practice of focusing on the recruitment of affiliates via the sale of leads to downlines, over actual product sales to retail customers.

Once again, Herbalife’s response to such a loss defied logic:

Herbalife said the loss of Dahl’s business “is not material.”

And that brings us to Peterson. Like Powell and Dahl, Peterson also built his Herbalife fortune on the foundation of recruitment over retail volume.

A failed Houston real estate agent in the early 1980s, Peterson joined the controversial multi-level marketing company in its early days.

He became one of only a handful of Herbalife’s 3.2 million distributors who made it to the very elite “Founder’s Circle” of top salespeople.

Peterson boasted of owning a Wyoming cattle ranch and homes in Brazil and in a private beach club in Mexico, in addition to his residence in Colorado.

Peterson and his former wife, Susan, rose with the help of an Internet-based lead-generation business now banned by Herbalife.

Called Work from Home Inc. and incorporated in 2002, it recruited individuals to Herbalife.

And now, a month and a half after Herbalife effectively guts its top earner’s business model, news of Peterson’s suicide brings with it a number of messy possibilities.

Off the bat we can discount the notion that Herbalife’s changes had no affect on Peterson’s income. Powell and Dahl’s actions speak for themselves.

One possible scenario that I entertained as I pondered the news today was that, in not taking immediate action as Dahl and Powell did, it’s possible that by the time Peterson came to grips with the magnitude of Herbalife’s policy change, that there simply wasn’t anything worth salvaging.

The question of whether or not there was any overlap between Powell, Dahl and Peterson’s downlines (or whether or not they were part of the same direct lineage of affiliate recruitment) remains open.

Another angle is possible FTC investigation into Peterson’s Work From Home Inc. company.

Along with Powell and Dahl’s lead selling side companies, Peterson’s Work From Inc

drew hundreds of consumer complaints to the Federal Trade Commission in recent years.

These complaints, along with the public accusations that Herbalife are a pyramid scheme are credited as the primary reasons behind the company’s policy change earlier this year.

Was there more going on behind the scenes between Powell, Dahl, Peterson and the rest of Herbalife’s top affiliates who engaged in lead-selling recruitment practices and the FTC?

Perhaps Peterson saw the writing on the wall and chose what he saw as the only way out.

A big piece of this puzzle that would indicate as such would be Peterson’s earnt commissions from Herbalife as an affiliate for the year thus far. Last year he made $3 million and if this year that was substantially less, it’d lend a great deal of weight to speculation that Herbalife’s policy change had a far greater impact on Peterson financially than even he anticipated.

Given the current climate engulfing the company, it’s virtually impossible not to at least consider the possibility.

Meanwhile Herbalife’s continual blasé responses to the effective gutting of their US market raises questions of its own.

To state that losing over a half of their US market is “not material” defies logic beyond belief. The only possible explanation I’ve been able to come up with is the gradual shift of focus from flailing US and Latino markets to China.

Just shy of a fortnight ago Herbalife announced an expansion of the license that permits them to operate in China:

Global nutrition company, Herbalife (HLF), announced today that China’s Ministry of Commerce has granted a license for Herbalife to conduct its direct-selling business in the province of Yunnan.

The licensed area in Yunnan province covers 12 cities, including the provincial capital Kunming, and 16 districts and counties. The license is effective immediately.

Yunnan province alone has 47.5 million people in it and, when combined with the 24 other Chinese provinces Herbalife have a license to operate in, it’s quite easy to see how market wise it wouldn’t take much for the company to cover any loss in US sales.

Back in July Herbalife confirmed that currently’60% of its U.S. distributors are Latino‘. With Hispanic consumer groups and politicians petitioning the FTC to investigate Herbalife though, who knows in what direction that figure will go.

The great thing about China? No pesky FTC and regulation of selling of leads to MLM affiliates. Hong Kong alone this year has proven to be a hotbed for a number of MLM hybrid Ponzi investment schemes, all operating directly under the nose of the local government.

As to the licensing of MLM companies in China, that’s a bit of a mystery to me. Apart from “pay us big sums of money”, I can’t make heads or tails out of what qualifies a company to operate there. In the case of Herbalife, in addition to paying licensing fees, having a great big manufacturing plant in China likely helps grease the wheels along.

After observing a boom in sales over the past decade, what’s stopping Herbalife deploying or encouraging their affiliates to deploy similar lead-selling marketing strategies in China?

Shawn Dahl’s Online Business Systems

is the successor to Global Online Systems, a company judged to be a criminal “scheme of pyramid selling” by a Canadian federal court in 2004.

Yet that didn’t stop Herbalife from turning a blind eye to Dahl using OBS to build a massive downline in the US for another nine years.

One can only wonder if,  had public allegations of Herbalife being a pyramid scheme combined with possible action from the FTC not arisen, whether or not there’d have been any change at Herbalife at all.

The impact of the company’s recent policy changes is naturally yet to be felt dollar wise across the company, with any immediate projections and financials not really telling us anything until the business has had time to prove itself.

Then and only then can the true impact of abolishing the affiliate recruitment machine monster Herbalife fostered over the past decade be ascertained.

That naturally gives them some time to build up the business elsewhere, such as in countries like China where MLM regulation, specifically on the front of lead selling by affiliates, is not even an issue. If I had to guess I’d say this is why Herbalife don’t seem too concerned with the ongoing loss of top US affiliates.

As it stands now though, Herbalife have a bit of a ways to go before they can mitigate a decline in the US with Chinese renminbi. And they probably want to get cracking on that front soon if statistical traffic analysis of is anything to go by.

As for casualties like Peterson?

Officially it’s all crocodile tears from Herbalife but off the record and somewhat sadly, if indeed Peterson’s suicide did have something to do with the recent prohibition of affiliate lead selling, “immaterial” collateral damage is probably more accurate.