Herbalife caught up in Hong Kong product investment scam
This one’s a bit of an odd story, in that for once Herbalife themselves aren’t directly involved in controversy surrounding the company.
Well, sort of.
Reports out of Hong Kong a few days ago detail two of the company’s affiliates milking Hong Kong residents for $50 million HKD ($6.4 million USD).
How’d they pull that off?
Some 60 people said they had been duped by two women, surnamed Choi and Ng, who claimed to be presidents in the Hong Kong office of multilevel marketing company Herbalife.
Choi and Ng allegedly told the victims they could buy Herbalife products at a cheaper price from them directly on which they could make a resale profit of between 5 per cent and 10 per cent.
The victims said that initially they received the goods and made a profit, so they started to invest more money in the scheme. However, they said the two so-called presidents disappeared at the end of last month and they had been unable to find them.
I’m going to go ahead and suggest these two have long-since run off to mainland China. Good luck tracking them down there.
What irks about this story though is the timeframe in which all this went down.
One of the victims, who gave her surname as Tsang, said she had lost HK$2.6 million in the scheme. She said she had known one of the women for years and that she had approached her around two years ago to invest in the products.
Alright, so we know this all started around two years ago. So the big question then is, how much of the $6.4 million that these women collected was spent on Herbalife products.
The victims said Herbalife had claimed the two women were only ordinary members of the organisation and were not on its staff.
You’ve got two regular affiliates, who are buying products that they dump on unsuspecting members of the public… to the tune of $6.4 million.
Now obviously for the scam to work, nowhere near $6.4 million was spent on Herbalife products. But how much product would the women have had to spent to trigger an internal investigation by Herbalife?
And remember, this crap went on for at least two years!
50%? Surely $3.2 million in product purchases by two Herbalife affiliates would trigger something on the company’s end?
20%? Still $1.28 million in product purchases.
Hell, even if only 1% of the $6.4 million these two scamsters took in was spent on Herbalife products, that’s still $64,000.
Granted again that’s over at least two years, but at what point does Herbalife make enquiries into it’s affiliate’s purchase of products?
Do purchases of tens out thousand of dollars (at a minimum) by Herbalife affiliates raise questions? Or does Herbalife simply turn a blind-eye and quietly bank the profit on the purchases?
Herbalife said it was “shocked” and appalled” to hear about the case. A spokesman said the memberships of the two women had been terminated, though it did not specify when.
My guess would be shortly after the victims contacted authorities about having been scammed, and not a moment earlier. Otherwise they could hardly be “shocked” to hear about the police case… they should have been all over the suspicious activity months ago.
Herbalife takes any case of violation of the company’s rules of conduct by our independent members very seriously. Herbalife has a very strict ethics policy and code of conduct, which all our independent members are contractually bound to comply with,” the spokesman said.
Right. Now tell me, what is the point of having a “strict ethics policy” and “code of conduct” if nobody at Herbalife was able to detect regular affiliates clearly purchasing obscene amounts of product?
Not good enough Herbalife, and just more of the typical PR lip-service I’ve come to expect from the company over the years.
Civic Party legislator Claudia Mo Man-ching, who is assisting the victims, said Herbalife should shoulder some of the liability for the victims’ losses.
“Herbalife as a multinational company should take some responsibility. We are talking about business ethics … You can’t just say some members had inappropriate practices and you have nothing to do with it,” she said.
Damn straight. Refunding those who were actually supplied with Herbalife products by the scamming duo would be a start.
Fair enough Herbalife isn’t responsible for the money the women ran off with, but certainly they are responsible for failing to detect two affiliates purchasing large amounts of product – and failing to ask any questions, despite a proclaimed strict ethics policy and code of conduct.
Whatever Herbalife products were distributed to these victims should be wholly compensated for, obviously minus any profits the victims might have made.
Meanwhile Herbalife claim they had no idea their affiliates were scamming people for millions of dollars. Does anybody really believe they have any idea how much genuine retail activity is taking place within the company?
Despite the glaring problems with its business model (affiliate purchases the company baselessly insists translate into retail sales), Herbalife maintains that it is not a pyramid scheme.
To be “fair” to Herbalife here, this may indeed be a “rogue operator” scam, but it was… shall we say… facilitated by the decentralized structure of Herbalife’s minimal oversight over its Asian operations.
herbalife may announce some sort of refund, to the victims. amountwise it may not be much, but it will make all the right noises.
they are PR pro’s, and even moreso now, when they are in hot water in the US, and their quarterly results are due on 26th feb, 2015.
If I ordered $64K worth of products from my company, even ONCE, I would be getting a DIRECT phone call from someone at the corporate VP/director level within 30 minutes, ha ha. They would have some SERIOUS questions for me on that.
Even if they didnt call, I would still have to show sales receipts. These receipts would have to be generated from, or assigned to, a customer that has a full profile and contact information on file with the company (for customer service, tracking, surveying and auditing purposes).
They also get reported to accounting and we are “1099ed” on them.
This is one way a legitimate company tracks sales to customers (because we dont put them in the pay plan to disquise the actual performace of the BUYING system).
We actually care who our products go to so we can measure, monitor and adjust for the performance, efficacy of products, and compliance of the SELLING system.
I got the Chinese version of the news and seems these two are most likely to be rogue operators.
They claimed to be high level Herbalife executives and was promising 10% return on funds invested with them. Then one day they just ran.
Victims actually thought they were with Herbalife and went to the official company store, and was told they’re just high level distributors. Here’s a full translation:
hk.apple.nextmedia.com/news/art/20150216/19044072
Boy, Herbalife can’t seem to catch a break from all the drama during these last couple of years.
Such is the life of a network marketing company… the lack of oversight means douchebags can join and **** the downlines and leave the mess to the company… and the company is willing to look the other way as long as the douchebags can rack up “sales”.
After looking over the herbalife ranks, SCMP was correct, it’s “president’s team member”. The Chinese translation “CEO” is too short and the scammers probably used it to fool the locals.
I can’t seem to find a list of Herbalife’s President’s Team HK members. However, I think they got “Executive President’s Team” but I can’t seem to find the actual names. It’s not in any of Herbalife’s US newsletters.
Interesting. I thought this “日日有營” was just a fake office, but apparently it really was a restaurant that had at one time up to 11 branches around Hong Kong.
Claims to have $20 HKD nutritious breakfast (which is like $3 USD) and offer weight loss advice and even facials (yep, all Herbalife products probably).
If I were to make a guess, I’d say Tsai and Wu really were Herbalife distributors as a sideline, and when their restaurant / facial biz failed they decided to run a Ponzi instead.
I found a post that back in 2010 (in Chinese, of course) they were apparently hiring people to spam the net with teaser ads, pay $300 HKD a month to find more Herbalife recruits. Guess they saw the writing on the wall already.
NOLINK://xocat2.com/f/archiver/tid-372368.html
So Herbalife didn’t ask any questions when these two began to order obscene amounts of product, but instead turned a blind eye and awarded the scammers Exclusive Presidential status. They even put their photos up on an “employee of the month” style billboard.
And it wasn’t until victims rocked up at the office to complain that Herbalife took the photos down (and presumably then terminated the two when they were later contacted by police).
And this went on for at least two years!
What a bunch of greedy incompetent morons…
Just wondering if they might have set up dummy retail customer accounts that they said were retail orders to disguise the large amount of monthly purchases.
Then when the amount of money they took in became so big, they realized they would be caught if they had to increase their orders to cover the interest cost to the “investors” so they bailed.
A Shaklee distributor in Mass. allegedly did this a couple of years ago. His marks allegedly were some of his Shaklee downline, including seniors.
He wasn’t in the restaurant business, but was running a side business in which he allegedly solicited investments, which he maintained were “loans.”
William Galvin, the Massachusetts Commonwealth Secretary, charged him civilly in 2012. The Feds charged him criminally in 2014.
NOLINK: fbi.gov/boston/press-releases/2014/former-belmont-resident-charged-in-6-million-investment-fraud-scheme
It was a little like TelexFree, in the sense that there was a fight over whether a Chapter 11 would become a Chapter 7.
PPBlog
Might be… but then Herbalife failed again. Why didn’t they detect it?
Surely a bunch of customer accounts created around the same time and accessed from the same IP (they couldn’t have had access to hundreds of PCs), should have triggered something?
Furthermore the customer accounts had to be pegged to an affiliate account, so the mass-creation of customer accounts again should have triggered something.
from changs news report in post#4, it appaears wsai and wu , were running a ponzi investment scheme, using the ‘herbalife brand’ to instill confidence in the investors.
did products worth 100K, REALLY exchange hands between tsai and chang? or were a few products given, and the rest was pure ponzi investment. the 10% profit must have come off the next investors payments.
we need clarification , that while running their ponzi, exactly how much product wsai and wu ordered form herbalife.
like any ponzi, wsai and wu must have started running out of money to pay their investors, and melted away into mainland china.
herbalife appears to be a side story, in this ponzi scheme run by two top distributors.
The report mentions products were originally provided to the investors, which encouraged them to invest more. At 1% of the 6 million invested, that’s still tens of thousands of dollars in product.
And this crap went on for two years.
Why did nobody at Herbalife pick it up?
It’s not like they could have convinced investors who gave them tens of thousands, or hundreds of thousands of dollars with one bottle of shake. Abnormal product orders should have been picked up by Herablife.
But they were instead too busy rubbing their palms together and counting the sales volume.
decentralization and negligence. with 3 mil distributors world wide there are going to be slip ups. i guess herbalife will tighten it’s belt moving forward.
If you had an automated system in place to detect oddities, then you wouldn’t have slip ups.
But this is from the same company that brought you “we can’t track retail sales”. Negligent and utterly incompetent – neither of which excuse them.