FTC describes Herbalife as a pyramid scheme, refuses to label
Accompanying the FTC’s settlement announcement with Herbalife today was a press-conference held by Chairwoman Edith Ramirez.
Ramirez opened the press-conference by reading from a prepared statement for about seven minutes.
Despite clearly describing Herbalife’s business model as that of a pyramid scheme, the actual words “pyramid scheme” were noticeably absent from Ramirez’s statement.
After Ramirez’s statement she took questions from the media. Not surprisingly, clarification on whether Herbalife was a pyramid scheme was the first question asked.
A journalist from the New York Times asked Ramirez;
So Herbalife in their press-release said the FTC had found that the company was not an illegal pyramid scheme.
In my quick look at the complaint I actually don’t see the words “pyramid scheme” appear anyway, but maybe I missed it.
So can you comment a little bit on that?
Ramirez (right) responded;
Sure. We didn’t allege a pyramid deception count (in the complaint), but what we did allege was an unfairness count.
We are charging that Herbalife’s compensation structure unfairly rewards recruiting that is ultimately unrelated to retail demand.
We focused less on the label then on making sure the facts in the complaint alleged what we considered to be the core problem with Herbalife’s business practices.
So uh… basically Ramirez and the FTC are precisely identifying Herbalife as a pyramid scheme, without explicitly “labeling” it a pyramid scheme.
Sounds to me like Herbalife might have demanded the FTC refrain from explicitly referring to it as a pyramid scheme as part of the settlement.
Another reporter from Bloomberg News brought up the same issue later in the press-conference.
I just want to go back to the question earlier about the pyramid scheme.
I mean it sounds to me … like what you’re saying is that this company has all the hallmarks of a pyramid scheme, isn’t that right?
Ramirez again dodged the question;
You know our focus isn’t on the label, our focus again was on articulated allegations in our complaint that we believe reach the core issue (such as the running of a pyramid scheme?).
The core issue or problem with what we considered to be unlawful practices Herbalife has engaged in (such as running a pyramid scheme?).
And our focus was on getting quick (and) immediate relief for consumers.
So I will leave to you to draw your own conclusions based on the facts that are alleged in the complaint… but our focus was not on a particular label (pyramid scheme… just say it already!).
Not satisfied with Ramirez’s explanation, a third reporter from the Financial Times brought up the same issue.
You said you haven’t focused on the term (pyramid scheme), but it certainly sounds like, looking at the complaint, the focus on recruitment and the deception of consumers, (undecipherable) certainly previous FTC descriptions of pyramid schemes.
Do you think you could talk us through perhaps the public interest argument that the FTC went through and how it came to not prosecute as a pyramid scheme?
Ramirez… once again dodged the question;
All I can tell you very briefly is this is a settlement.
What we aimed to do in our complaint was to allege the core facts that we believe constitute unfair and deceptive practices.
And in addition our aim was to ensure that we could obtain relief promptly and in a timely fashion as opposed to litigating for perhaps years.
So the focus again was less on the label but rather on making sure that our complaint adequately alleged what we are concerned about, and also provided appropriate, both monetary and injunctive relief for consumers.
Towards the end of the press-conference, a fourth question from the media again tried to seek clarification from Ramirez on the pyramid scheme issue.
I know that you’re not going to put any labels on this, but it seems to me if we look at the BurnLounge case, that while this complaint does not use the words “pyramid scheme”, would you agree that a prima facie case of a pyramid scheme is alleged with the allegations within the complaint?
You already know how Ramirez answered…
Again, I will leave it up to you to draw that conclusion.
Our focus in this complaint was in addressing the core issues (yada yada yada).
As uncomfortable as Ramirez was fielding pyramid scheme questions however… they just kept coming.
I hate to belabor the point about pyramid schemes and labels.
I understand you say you don’t want to label and people (should) draw their own conclusions, but since this was a negotiated settlement, should we assume that part of the settlement discussion was whether you would have a pyramid scheme against (Herbalife) in the complaint that was filed?
Creative… but still only good enough to draw another non-answer out of Ramirez.
Well look I think this is belaboring the point. This is a settlement agreed upon, a resolution of this matter.
We’ve alleged the issues that we are concerned about, that’s really our focus.
And we’ve achieved what I think is really important, monetary and injunctive relief that will ensure, in my mind, that Herbalife, if it complies with these provisions, that it operates legitimately going forward.
So that was the key objective. We achieved that and we will certainly do our best as we continue to ensure.
Obviously as frustrated as the rest of us with Ramirez’s answers, the reporter then pressed her on Herbalife’s “we are not a pyramid scheme” statement.
Did you review the language in their (Herbalife’s) press-release that sort of affirmatively said that they were not declared to be a pyramid scheme?
Because they’re sort of having that as an outright headline.
Over twenty-five minutes into the press-conference, Ramirez finally delivered an answer:
I do not agree with that statement.
The word “pyramid” does not appear in our complaint that is true, but um again the core facts that we’ve alleged, that we consider to be problematic with their compensation structure, are set forth in detail in our complaint.
And again, I will leave it to readers to draw their own conclusions. But that they were determined to not be a pyramid… that would be inaccurate.
When asked if she endorsed the statement that Herbalife was not found to be a pyramid scheme, Ramirez replied, “I do not endorse that statement”.
I suppose other than Herbalife being able to spin the settlement to the Nth degree, the FTC not explicitly using the term “pyramid scheme” doesn’t really matter.
In no uncertain terms the regulator repeatedly describes Herbalife as a product-based pyramid scheme over and over again in their complaint.
Message received, loud and clear.
And if not using the term “pyramid scheme” was one, if not the only stipulated condition the FTC settlement approval hinged on, it’s not that big of a deal.
Certainly it seems the FTC’s stipulated settlement restrictions would have no doubt been the same had the words “pyramid scheme” explicitly appeared in their complaint.
FTC Press Conference on Herbalife
Posted by Federal Trade Commission on Friday, 15 July 2016