Herbalife “Circle of Success” event fraud targeted in class-action
A group of Herbalife distributors have filed a class-action complaint.
What makes this case interesting is it targets the company’s “Cycle of Success” events, which the class plaintiffs allege has resulted in over a billion dollars in Distributor losses.
The Herbalife class-action lawsuit was filed just shy of a year ago on September 18th, 2017.
Named plaintiffs in the lawsuit are Jeff and Patricia Rodgers, Michael and Jennifer Lavigne, Cody Pyle, Jennifer Ribalta and Izaar and Felix Valdez.
The plaintiffs collectively allege they’ve filed their class-action in an attempt to seek
recovery from a corrupt organization of individuals and entities who act together, using misrepresentation and deceit, to sell access to a series of emotionally manipulative live events.
The events at issue are marketed as Cycle of Success, Wheel of Success or Circle of Success.
Herbalife produces its own large-scale events four times a year: a regional $50 “January Spectacular,” two regional $100 “Leadership Development Weekends” in April and October, and a national $120 “Extravaganza” each July.
The other eight months of the year are left to the semi-local $30 – $50 Success Training Seminars.
According to the lawsuit, Herbalife distributors are told
they must “attend every event” if they want to be successful; and that they must “qualify” for special treatment at these events by making large monthly purchases of Herbalife’s products.
Mark Addy, a named defendant, is singled out for having stated at a 2011 Circle of Success event, “If you go to all the events, you qualify for everything – you will get rich.”
Pretty damning stuff, considering the statement was made at an official Herbalife corporate event.
In early January the FTC announced it would be returning $200 million to 350,000 Herbalife victims.
Plaintiffs argue that their case is outside of what the FTC settlement covers.
They state that the Circle of Success event system was “untouched” by the FTC action, and remains ‘the single most effective fraud in the arsenal of Herbalife and its top distributors‘.
Another interesting claim in the lawsuit is that
none of Herbalife’s top distributors, past or present, including the Individual Defendants, has built a significant income by retailing Herbalife’s products according to Herbalife’s rules.
Defendants have actual knowledge that – despite their incessant misleading claims to the contrary – there is no viable retailing opportunity.
And bear in mind, that claim is made despite the FTC’s “Herbalife is totally a pyramid scheme but we’re not going to use the words pyramid scheme” 2016 settlement.
Instead of relying on now prohibited chain-recruitment with no retail and impossible income claims, Herbalife’s top affiliates continue to make bank by getting already recruited affiliates to attend Circle of Success events
Other alleged advantages Herbalife’s top distributors fail to disclose to new recruits include
- the roll-up of downlines belonging to distributors who drop out
- the stacking of positions maintained by proxies of top distributors
- nepotism among Herbalife’s President’s Team members
- pre-opening of new international markets to select President’s Team distributors
- money laundering through purchase of Herbalife products and withdrawal via commission checks
- currency arbitrage by purchasing Herbalife products in one currency and withdrawing commission checks in another (Venezuelan and the bolivar are cited as an example)
- the selling of marketing tools to downline affiliates making up a large percentage of top distributor income
President’s Team distributors do not disclose when the mansions, exotic automobiles, yachts, and helicopters used in their Circle of Success marketing efforts were in fact
funded by these supplementary sources of income.
Furthermore, the lawsuit alleges, many of the distributors who speak at Circle of Success events are in fact “broke and bankrupt”.
Many of the income claims made by presenters at Circle of Success events, organized and overseen by the Defendants, are altogether false.
It is not unusual for top distributors to be struggling to survive financially, while boasting from the Circle of Success stage about the life changing financial security of their large Herbalife incomes.
For example, President’s Team member Michael Burton was a frequently featured guest speaker at Herbalife events across the country.
On June 22, 2013 Mr. Burton was the guest speaker at the Miami Success Training Seminar, speaking to members and recruits about the “financial freedom” he had attained via his Herbalife business.
The next month Michael Burton filed for bankruptcy protection.
Quoting Herbalife founder Mark Hughes on how Circle of Success events are structured, the lawsuit states that
only 25% of an event should be devoted to information about Herbalife’s products and marketing plan, while the remaining 75% should be reserved for success testimonials.
Note that once purchased, tickets to any Herbalife Circle of Success event are non-refundable.
Perhaps in the wake of the FTC’s retail settlement with Herbalife, casting light on deceptive practices conducted at Circle of Success events is more important than ever.
Bad enough the events have been used to further pyramid recruitment within Herbalife for decades.
Now that’s not supposed to be possible, surely if the format of the events hasn’t been changed there’s an even deeper level of fraud taking place?
When Herbalife’s North American business opportunity participants place orders with the company, many are purchasing Circle of Success qualifications as much as they are
wholesale products to resell.
They have been fraudulently induced into the belief that “qualify for everything” is a strategy for earning limitless income in Herbalife, when the reality is that it is only a strategy for rapidly losing income.
I’d take any bet that selling retail products hasn’t all of a sudden become the focus of the events…
Not withstanding even if things have changed, that in no way excuses or justifies the role Circle of Success events have and continue to play in Herbalife’s business model.
Herbalife profits directly from the sale of the regional and national Circle of Success event tickets.
The stunning stories of rapid financial success peddled at these events are at the heart of the pitch for the Herbalife business opportunity.
Circle of Success events use deceit and misrepresentation to recruit new participants into Herbalife’s fraudulent proposition, and to keep those participants (like Plaintiffs) locked in a cycle of mandatory monthly purchases.
The Herbalife success story is a fraud; a predatory scheme intentionally rigged against newcomers playing by the rules.
Each of the class plaintiffs details how they were sold on riches if they attended Herbalife Circle of Success events, and how ultimately that didn’t happen.
Collectively the class plaintiffs lost tens of thousands of dollars purchasing Circle of Success tickets.
Named defendants include Herbalife and several top Distributors who organize the events.
Questions the class plaintiffs hope to have answered by their lawsuit include (quoted verbatim);
- Whether Herbalife committed wire fraud by implementing, facilitating, and participating in the Circle of Success enterprise using the common methods described herein;
- Whether wire fraud committed by Herbalife constitutes a pattern of racketeering activity;
- The extent to which Herbalife exerted mutual control over the alleged racketeering enterprise;
- The extent to which Herbalife’s revenues, and Individual Defendants’ income, are reliant on the activities of the racketeering enterprise;
- Whether Defendants engaged in a conspiracy to commit wire fraud through the Circle of Success enterprise using the common methods described herein;
- Whether Defendants’ conduct constitutes an unlawful, unfair and fraudulent business practice under Florida law;
- Whether Defendants intentionally withheld material information about the likelihood and ability of Plaintiffs’ obtaining the promised results and monetary returns from pursuing the Herbalife business opportunity;
- Whether Defendants failed to disclose that President’s Team members built their downlines by using now banned methods;
- Whether Defendants failed to disclose the high cost of attracting new recruits to the Herbalife business opportunity;
- The extent to which Defendants intentionally misrepresented that the Herbalife business opportunity could be successfully pursued at little cost;
- Whether a substantial portion of the income claimed by President’s Team members is derived from laundering the proceeds of other criminal operations through the scheme;
- Whether Distributor Defendants stacked their downlines with empty proxies to facilitate their top-down manipulation of the compensation scheme;
- Whether Defendants failed to disclose that Distributor Defendants stacked their downlines with empty proxies to facilitate their top-down manipulation of the compensation scheme;
- Whether Defendants fraudulently represented that qualifying for, and attending, events was the key to success in the Herbalife business opportunity;
- Whether Defendants repeatedly misrepresented that the only way to fail at Herbalife is to quit;
- Whether Defendants used the Circle of Success to misrepresent that the children and family members of the President’s Team had achieved success through the Circle of Success;
- Whether Defendants knowingly presented financial success testimonials from people who were not having financial success;
- Whether Defendants’ disclaimers were legally insufficient given the net impression created by Defendants’ activities, and the explicit, intentional disavowal by Defendants and/or proxies of the substance of those disclaimers;
- Whether Defendants’ Circle of Success events were inherently fraudulent and/or exploitative;
- Whether Defendants’ coordinated sales and marketing tactics as they relate to Circle of Success events were inherently fraudulent and/or exploitative;
- Whether Defendants took affirmative actions to fraudulently conceal the harm from the Class;
- Whether Plaintiffs and Class members conferred a benefit on the Herbalife Defendants through their Circle of Success purchases, participation, and unpaid labor relating to the Circle of Success events;
- Whether the benefits conferred by the Plaintiffs and Class members on the Herbalife Defendants were made at Plaintiffs’ and Class members’ expense, such that Herbalife Defendants’ retention of the benefits is unjust;
- Whether Herbalife Defendants misrepresented material facts by presenting false information and omitting material information concerning the Circle of Success event cycle to the Plaintiffs, including but not limited to misrepresenting that attendance at all Circle of Success events would guarantee success, omitting the material fact that Plaintiffs could not succeed simply by doing what the Defendants told Plaintiffs, and omitting the material fact that Defendants achieved “success” by means other than those represented to the Plaintiffs;
- Whether Herbalife Defendants knew or should have known that these representations were false;
- Whether Herbalife Defendants intended to induce Plaintiffs to act on the misrepresentations, including by attending Circle of Success events;
- Whether Plaintiffs relied upon Herbalife Defendants’ misrepresentations by expending substantial money, time, and effort to attend Circle of Success events;
- Whether Herbalife Defendants’ misrepresentations caused injury to the Plaintiffs;
- Whether Plaintiffs’ reliance on Herbalife Defendants’ misrepresentations was reasonable;
- Whether Plaintiffs and Class members are entitled to damages, which damages are ascertainable by common proof and methods of proof and
- The proper measure of damages for Defendants’ violations of law.
Counts cited in the complaint include
- conspiracy to conduct the affairs of a racketeering enterprise
- deceptive and unfair trade practices
- unjust enrichment and
- negligent misrepresentation
In a December 2017 filing, named top Herbalife distributors in the lawsuit moved to compel arbitration. Failing which, they want the lawsuit moved to California.
Several motions to dismiss have also been filed.
A hearing on to decide the arbitration and change venues was scheduled for and, as far as I know, took place on August 22nd.
As at the time of publication the case docket hasn’t been updated to reflect what happened at the hearing.
Update 24th August 2018 – The ruling on arbitration and change of venue motions has been published.