Herbalife issue the pyramid scheme or stock manipulation?
Standard practice here at BehindMLM is to ignore stock market theatrics.
Herbalife’s stock price goes up, it goes down, some guys appear on tv to talk about it and so it goes.
Of far more importance is the regulatory side of the Herbalife story, which just got more interesting with news of an FBI probe breaking yesterday.
Whereas in the past though we’ve seen the FTC and SEC both investigate and continue to investigate Herbalife directly, the FBI’s investigation is a little different.
…or is it?
The headline those who see Herbalife as an MLM vs. anti-MLM battle will run with is that “the FBI are investigating Bill Ackman”.
And rightfully so, as it seems like that’s what’s happening:
The FBI and other federal authorities have interviewed people hired by activist investor Bill Ackman as part of a probe into potential manipulation of Herbalife stock, according to a report.
Ackman, who needs no introduction, has bet $1 billion that Herbalife is a pyramid scheme. He’s already millions in profit on the bet (Herbalife’s stock has plummeted over the past two years), but wants the stock to hit $0.
Something that will most certainly happen should regulators launch legal action against the MLM giant. Which Ackman has been heavily pressing for, to the tune of some $50 million dollars thus far.
The probe is looking into whether people, including some hired by Ackman, made false statements to regulators and others about Herbalife’s business model, the Journal reported.
The false statements were made to spur investigations into Herbalife and lower its stock price, according to the report, which cited people familiar with the matter.
The money at stake here clouds the issue.
Those who refuse to look at the bigger picture simply dismiss Ackman as an anti-MLM zealot, looking to make a quick (albeit large) buck by destroying Herbalife.
Unfortunately, from what I read during my MLM research travels, there’s a somewhat depressingly significant amount of people in the MLM industry who blindly adopt this stance.
Personally I couldn’t care less about Ackman or his short bet against Herbalife. The way I see the FBI investigation is not as a PR fodder for the “we’re not interested in having a rational discussion about this” rabidly pro-Herbalife camp, but rather a positive to getting to the bottom of the company’s murky business model.
Key to the FBI investigation will be how they determine whether or not Ackman has manipulated the stock.
Boil down any of Ackman’s presentations, speeches given, letters written or anything he and his related entities have presented to regulators – and the message is loud and clear: Herbalife is a pyramid scheme.
Therein lies the rub.
If Herbalife is indeed a pyramid scheme, then Ackman can hardly be accused of manipulating the stock through false pretext.
If Herbalife isn’t a pyramid scheme, then Ackman and Pershing Square deserve everything coming their way.
Determining as such though brings us back to the other ongoing regulatory investigations and Herbalife’s business model itself.
Simply put: The FBI cannot determine stock manipulation without a decisive outcome on the Herbalife pyramid scheme issue.
I maintain, as I have since I first reviewed Herbalife, that the company deliberately and purposefully operates in the grey.
The entire Herbalife business model appears to be geared towards “how can we run a near 100% affiliate-funded compensation plan, within the current US legal framework?”
To that end Herbalife have no wholesale customers, and claim their affiliates purchase product for self-consumption and resale. The company claims most of their affiliates are affiliates simply to earn a discount when purchasing Herbalife products.
Of course they, by design, have no way of tracking this – at least not publicly. Yet they profess as much like it’s the gospel-given truth.
Left unsaid is the fact that it’s pretty evident that Herbalife themselves do virtually nothing to demonstrate or prove the existence of retail activity taking place.
After reversing a promise to introduce a wholesale customer class (which would prove their assertion that the bulk of their affiliates only want Herbalife products at a discount), it’s evident that Herbalife are fine with maintaining the murky status-quo.
And it is this mess that regulators have been dissecting now for over a year. The FTC, SEC and now FBI are involved. We just need the DOJ and Secret Service to now confirm their own investigations and we’ll truly have a regulatory free for all on our hands.
When regulators investigate, vague statements and hollow PR doesn’t cut it. They will need to break down the flow of money in Herbalife’s billion dollar operations and establish where revenue is being sourced, why Herbalife products are being purchased and how and on what the bulk of the company’s affiliates are getting paid.
That unfortunately takes time.
Looking at Herbalife’s business model, I think it’s pretty clear that retail is virtually non-existent. You’ve got thousands of affiliates around the world purchasing products, which are then either given away or consumed, with commissions paid via recruitment of others who also buy into the scheme.
Given that, anyone who is celebrating the FBI investigation on some notion that they’re going to be dragging Ackman in for stock manipulation sometime soon, should probably re-evaluate their position.
Neither Ackman nor Pershing Square is under investigation, but the FBI and prosecutors from Preet Bharara’s US Attorney’s office in Manhattan have conducted interviews and sent out document requests in connection with the probe.
The FBI and Bharara’s office declined to comment.
Far more likely is that the FBI are gathering information to be used throughout a wider joint-regulatory investigation that is currently playing out.
They need to know precisely what is being alleged here and by whom. Anything less and the question of whether the agencies actually conducted their own investigation or just took Ackman’s lead will always linger.
And when you’re looking to bust open a multi-billion dollar company’s business practices, you don’t want to leave any avenue unexplored.
The problem here is “stock manipulation” is a very broad umbrella indeed.
It is usually used to prosecute people who do pump and dump on their own company’s penny stock, though in Ackman’s case, IMHO HLF is mainly after the PR value as Ackman hardly made any money off HLF since he debuted the “epic short” what? Couple YEARS ago? December 2012.
Just go pull up a 5 year chart of HLF and you’ll see that HLF had been doing TWICE as well as the S&P500 as of June 2012, then it had a dip, then another dip to match S&P when Ackman debuted his short, but during all of 2013 HLF went up to 250% of S&P growth, only to gave back every last bit of it during 2014.
In January it actually SHRUNK relative to S&P. This latest 12% blip based on potential bad news about HLF’s enemy barely brought it into parity of S&P.
IMHO, HLF, and their allies (such as Hempton) found Ackman to be the easy target, so they pile on him rather than the nebulous “government investigations”. But it’s NOT going to cover up the fundamental fact: Herbalife’s “retail” is iffy enough it can’t really withstand scrutiny, and its stock will likely take additional dips in the near future.
first of all congratulations to the boss, for saying the words ‘stock market’ 🙂
– and it begins! the reverse charge on ackman has begun. herbalife has not hired top brass from the FTC and govt, In Vain!
– some people who may, or should, be interviewed are christine richards, shane dineen, whistleblowers paid by ackman, writers [rabid abusers] like ‘quoth the raven’ and matt stewart from seekingalpha, who are ‘shorts’ themselves, SA itself, for allowing baseless, anti HLF rant articles, which were aimed at manipulating herbalife stock.
– and of course dear LULAC, who have been publicly claiming on stage, that ackman is their ‘brother in arms’, and trying to interfere in the settled class action suit of dan bostick/herbalife. where their interests lead, should be easy to trace for the FBI.
– the investigations and counter investigations, in the herbalife saga is All About Politics. i remember long ago in a post, i had commented that whether herbalife lands in court, will be the net result of the politics surrounding this matter.
– herbalife at best, is a borderline case, appearing to follow all Current Laws and Regulations, and hence taking it to court could be a suicide mission.
– i’m calling it, herbalife will get a settlement and fines, ackman will be very burned. he does not have the clout of herbalife, this david should not have taken on this goliath.
besides, you should not be allowed to attack companies on the stock market, at such a ‘public scale’. who will be responsible for re-establishing the image of a company which is attacked thus?
*sigh*. No, it hasn’t.
Not even Enron or companies exhibiting Enron type behaviour ???
Let’s be thankful Vito Corleone never decided to float Genco Olive Oil on the stock exchange
*sigh*
neither was enron attacked by any ‘short operation’, and neither has herbalife Ever exhibited any enron type of behavior. herbalife is a fruit, enron was a mammal.
do not attempt comparison.
enron was a ‘book cooker’, it own oversmartness caused its stock to die. nothing like herbalife, nothing near herbalife.
read this: money.howstuffworks.com/cooking-books7.htm
And what, you don’t think Herbalife aren’t cooking their own revenue books?
They’ve manipulated the grey area in current laws to the Nth degree through obfuscation.
Hopefully we’ll see an end to that and those responsible held wholly accountable.
i’m all for court cases and proving obfuscation. the last Big Confrontation was amway vs FTC. a fresh court investigation into pyramiding allegations against herbalife, would make life very interesting for the reading public!
but the FTC moves pretty swiftly when it wants to shut down companies and take them to court. this over 2 year investigation is hinting at ‘settlement’. less interesting, but seems true.
Oh, I’m sorry, when you said:
I thought you meant:
I didn’t realize you granted an exemption to publicly listed MLM companies
in post #2, in naming persons who may be questioned by the FBI, i missed naming michelle celarier, of the post.
she is personally close to bill ackman, and has been using her articles in ‘the post’, to build up his position.
i read on SA, that some formerly active herbalife tweeters like celarier and quoth the raven , have fallen silent, over the last few days. fat lot of good that’ll do!
i cant believe i have to explain this.
– the FTC/SEC/secret service/DOJ/AG or any other govt agency under the sun, is completely allowed to investigate/attack/drag to court/shut down, ANY listed company on the stock market.
i hope this is ^^ CLEAR to people who’s neurons don’t flash in the morning.
– on the other hand, private individuals [like ackman] who trade the stock market for profit, cannot ‘short’ a listed company and then wage a PR campaign against it. that’s manipulation. it’s illegal. it’s totally bad for free market economy and the stock market.
hence my comment ‘besides, you should not be allowed to attack companies on the stock market, at such a ‘public scale’. by ‘you’ i meant private individuals.
Yet he did it
Another Anjali conspiracy theory in the making perhaps ???
A Private individual who is the founder and CEO of an employee owned capital management company with funds valued at in excess of $16 billion
Not quite your average Joe “private individual”
uh, riiight.
“Another Anjali conspiracy theory”, which is being investigated by the FBI.
are you looking for a nobel prize in the segment ‘IQ which needs an electron microscope to be weighed, in atomic mass number?’
what does a person having money, have Anything to do with his/her status as a private individual?
AGAIN, what does a person having money, have Anything to do with his/her status as a private individual?
amazing!
The Herbalife case is too vague to be brought to court. FTC or SEC can’t file a complaint based on “symptoms of a pyramid scheme”.
Lack of retail sale to external consumers is in itself not illegal, i.e. people can’t point to a specific law demanding companies to have retail sale or prohibiting the lack of it.
I seriously doubt that the law separates between “external consumers” and “internal consumers”. Business logic will separate between them in some scenarios, but legal logic will most likely not see any major difference (e.g. Amway 1979).
Simple,
it’s not an individual, it’s a multi billion dollar hedge fund manager i.e Pershing Square Capital Management, doing what multi billion dollar hedge fund managers do in the capitalist / stock market system.
It’s not the first time this sort of thing has happened and it most certainly won’t be the last.
@norway
i agree with all three points you make in post#14
1] herbalife at best could be a borderline case, proving ‘pyramid’ in court could be a suicide mission for FTC.
2] there is no law concerning ‘retail’ in MLM, case law only refers to sales to end consumers.
3] the law has divided people in MLM into three classes:
a] those on the compensation plan
b] those who self consume or retail, without being on the compensation plan
c] those who buy at retail.
in my view, b+c, constitutes the end consumers. i may be wrong [or not!], this FTC herbalife investigation, will tell us how the FTC has interpreted the burnlounge appeal order.
OK, i should’ve expanded on the definition of private individuals.
private individuals will include- individuals, individual stock market entities, institutions, etc, and etc, and every thing that ‘shorts’ the market. OK?
shorting is completely legal, and in fact a good method of keeping stocks from getting inflated.
but, ‘short manipulation’ of stocks on the other hand is illegal:
having press conferences to create an atmosphere of ‘illegality’ around a company’s stocks could well fall under stock manipulation.
getting senators and AG’s, to subscribe to your views, and going to the press about it, could be stock manipulation.
paying whistle blowers and releasing damning info to the public, which affects the stock price, could be manipulation.
short selling happens everyday. in how many instances does the FBI initiate a probe?
ackman himself said in a recent interview, that the next time he shorts a stock, he wont be so public about it. good idea. for now let his actions be investigated by the FBI.
How many pyramid schemes get shorted on?
Herbalife could end this tomorrow by providing retail revenue figures, but they choose not to.
So instead we have regulators putting together an accurate picture of the business, which takes years due to it being a multi-billion dollar company.
Look at how long the TelexFree/Zeek investigations took, and there we were talking $850M to $1billion through relatively new companies.
HL is huge and by design keep little to no accurate records of the revenue sources. Putting together a case is going to take time. Alot of time.
Your misdirection meanwhile is as slippery as Herbalife’s PR dept.
@oz
i dont think it is misdirection. the FBI apparently has enough cause to undertake this investigation into stock manipulation by pershing square.
even if your position is correct, about herbalife, ackman cannot use illegal stock manipulation to strengthen his case. two wrongs don’t make a right.
and if the FTC lets herbalife off with some fines, then ackman will face SEC fines, and a back breaking civil suit from herbalife.
Yet…
Like I said, your misdirection is as slippery as Herbalife’s PR dept. It’s almost fulltime job keeping Herbalife article comments on topic here.
Equally, it could fall under the heading of
“Hedge fund CEO outraged by blatant pyramid scheme listed on stock exchange refusing to divulge retail revenue figures”
or
“Hedge fund CEO: I’m sick and tired of shady operators hiding behind commercial confidentiality”
or
Hedge fund CEO gets no answers from Herbalife: decides to take his concerns into the public forum”
Or my favourite “no conspiracy theory required” headline:
“Ackman declares Herbalife to be pyramid scheme, puts his reputation on the line and money where his mouth is to prove it”
@LRM
there is nothing wrong in being ‘outraged’ or ‘sick and tired’ as long as you express these ‘feelings’ within legal limits.
a hedge fund CEO, is not entitled to answers from a company he has ‘shorted’ so heavily.
let the FBI probe go through, and wait for the answers. we can trust the FBI. why hyperventilate?
who is ackman to ‘declare’ anything? is he the FTC/SEC or just a stock market businessman? your statement is just so wrong!
I declare business models to be dodgy whenever I come across them. Why do you have to be a regulatory agency to do so?
@oz
the free press is absolutely entitled to express their ‘views’ about anything.
ackman ‘shorted’ the stock, and then went to town vilifying herbalife.
‘quoth the raven’ and matt stewart on SA , were personally short the stock, while writing ugly articles about herbalife.
‘INTENT’ is everything.
Who is hyperventilating ???
It amuses me to point out the absurdities and inconsistencies in your conspiracy theories
And we’re back to the proving of that intent, which is tied into the question of whether Herbalife is a pyramid scheme or not.
Only if it isn’t (yeah I know, hahahahahah), then can you even begin to assert that Pershing square operated with the intent to manipulate Herbalife’s stock under false pretenses.
Common-sense dictates that if Herbalife had significant retail activity taking place, they would have bent over backwards to flood the press with said figures by now.
Instead they went in the opposite direction and tried to bullshit everyone with an irrelevant Neilson survey.
I might be more cynical than your average person due to running this site, but I’m pretty sure my bullshit detector isn’t off on this one.
I’ve got no reason or vested interest in Herbalife being shut down. I base my analysis solely on their own actions and business model.
Pershing isn’t going down for stock manipulation because Herbalife’s business model doesn’t add up. And because of that, you can’t accurately assert the firm didn’t intend to expose Herbalife’s dodgy business model via a very public platform.
The existence and of said dodgy business model universally trumps a financial interest Pershing might have in said model being exposed (specifically within the context of a motive).
Nothing trumps fraud.
Imagine the uproar if the headline was:
“Hedge fund manager reveals: We knew Enron was a fraud, but chose not to reveal what we had discovered to the market in case we were accused of manipulation”.
with two federal agencies doing their job, we can believe what we believe, and wait for their determinations.
why hyperventilate?
How can they be looking into the claim when “neither Ackman nor Pershing Square is under investigation”?
This was the primary basis for one of the key points of this article, that the FBI are more interested in the claims (information gathering) than stock market speculation.
We’re seeing multiple regulatory agencies get involved as the Herbalife investigation gets bigger. This is in line with previous regulatory investigations we’ve seen in the MLM industry.
once again, enron had nothing to do with ‘short stock manipulation’.
i don’t know why you keep bringing it up. it’s not relevant.
‘hired by ackman’ is an important phrase to note.
has the FBI stated it is not investigating ackman and PS. i’m sure PS did not receive a mail from the FBI that they were under investigation. we know the FBI does not work like that.
What came first ???
Pershing discovering Herbalife is a pyramid or Pershing moving to profit from the fact it had discovered Herbalife is a pyramid and the stock was bound to crash, leaving Pershing in profit ??
It’s called capitalism.
everybody loves capitalism, but even capitalist games have ‘rules’.
‘stock manipulation’ for profit is a big No No.
What evidence, other than conspiracy theories, is there Pershing is manipulating anything ??
The way I see it, Ackman received evidence proving what had up until then had only been suspicion that Herbalife is nothing more than a well disguised pyramid scheme.
Nothing unusual in his researching Herbalife or any other publicly listed company.
That’s what hedge funds do.
Being the clever little hedge fund CEO that he is, he saw the opportunity to make a buck and, in true capitalist fashion, shorted Pershings’ investment.
Then he did his duty and revealed what he had learned to the exchange and the public.
No conspiracy theory required
Or, quite possibly, he did things in reverse order:
He revealed what he knew THEN shorted the stock because he saw the writing on the wall
OR
He was so pi**** off by the fact no one would listen to what he was saying he did what he did and forced the issue
None of us know for sure
The only thing we do know for sure is, none of what he did was illegal enough to attract the attention of those tasked with regulating such things
the only ‘theories’ i’m seeing here are the ones extrapolated by you in posts 36 & 37. ackman may have done this , ackman may have done that!
1] what ‘evidence’ has ackman provided instead of very public ‘allegations’? going to nutrition clubs, in brazil and wherenot, and recording events with a ‘biased’ ‘invested’ viewpoint, will not stand as evidence in any court of law. this kind of investigation and evidence, is for ‘confirmation bias’ rather than true information.
as for ‘evidence’ here’s a charming story: at the end of ackmans press conference about nutrition clubs, his dad asked the following question [not an exact quote but close] – When do you think you will have enough evidence to prove Herbalife is a pyramid scheme?”
cho chweet.
Herbalife’s compensation plan is all the evidence you need. Everything else is just noise (which is why you won’t find any of it covered here).
I’ve seen Ackman openly acknowledge he doesn’t have access to Herbalife’s books, but he knows full-well regulatory agencies do.
That’s the kicker and part of Herbalife’s carefully designed deception.
They claim retail, claim there’s no data to back this up and won’t modify their comp plan to record such data. Neither will they reveal the amount of revenue they generate via retail (which is not affiliates reselling product they purchased).
Regulators are likely to blow this crap wide open when they’re done. Which Ackman is naturally aware of.
Meanwhile Herbalife run around insisting their not a pyramid scheme, and lackeys such as yourself hinge they aren’t on the fact that nobody except Herbalife and regulators have access to the data that conclusively proves it either way.
Herbalife’s business model doesn’t reward retail. It rewards paying huge sums of money and then recruiting others who do the same.
It’s not like Herbalife’s books are going to miraculously show otherwise. And in that sense I really don’t get their position in all of this.
They obviously know they’re going down, but they seem to cling to the hope regulators will clear them based on how well they’ve manipulated the grey (“we don’t have to show or track our retail revenue, but we’ll insist it’s there so we’re not a pyramid scheme”).
Common-sense dictates that’s not going to happen.
*sigh*
i wish kevin thompson would stop by, and walk you carefully out of this retail minefield you’ve positioned yourself in.
you know, you wont allow me that argument.
KT called out ackman’s game and the FTC investigation, months ago. i’m siding with him on this.
i agree with you on all your ponzi callout’s, but not this.
That’s ok. We’ll just put Herbalife in the SpeakAsia basket.
You buggered up there too.
yeah right. on the other hand, this could be your first buggerup.
no one has a crystal ball here. no one is always right. the law of averages must catch up.
Yeah it could, I’m certainly not infallible.
But common-sense is common-sense, and neither Herbalife’s business model or their unwillingless to track or publicly disclose their retail figures adds up.
I don’t pull these arguments out of my ass, I work with what information is available – and I think there’s enough information available on Herbalife to conclude they’re dancing the dodgy.
What kind of dumbasses spend upwards of $50 million on PR instead of just killing the pyramid scheme allegations by releasing their retail figures?
I mean really, is it that hard to go “Yo, we made $x from retail orders last year and $lessthanx from affiliate orders, clearly we’re not a pyramid scheme”?
Nope. And that’s precisely why the “Herbalife isn’t a pyramid scheme” argument doesn’t add up. It’s based on nothing but good faith and ignores the realities before us.
i think there’s two ways to approach the herbalife conundrum.
one is your way, looking only at the compensation plan and deducing dodginess, without access to any data.
one is looking at caselaw and comparing herbalifes working, with the requirements of law.
both ways may be incomplete in themselves. meanwhile, neither argument is pulled out of anyone’s ass. both are meritfull stances.
lets bide our time, and try to keep it polite 🙂
Yeah, like I said – Herbalife’s gameplan is “how far can we stretch the grey and get away with it”.
Which basically boils down “how can we operate without retail and not have anyone raise an eyebrow?”
It’s just deceptive manipulation and the MLM industry deserves better than that.
I maintain that’s not going to work and regulators will reel them in. It’s gotten too big to ignore.
The grey area in Herbalife is the low level distributors. They don’t participate in the compensation plan, so they might as well be seen as wholesale or retail customers.
The low level distributors participate in an integrated “feeder program” rather than in a pyramid scheme. They pay a relatively low price for the right to buy products at a discounted rate, but they don’t participate in the recruitment driven opportunity. They won’t be compensated from the plan even if they recruit others.
Consumers may not see the difference between discount and compensation, but a defense lawyer will.
The fact you won’t can’t see the possibility your declared stance on the matter is based on anything more than theory is beside the point.
My theories are demonstrably just that – theories.
I don’t know what exactly happened and when, neither do you.
Of course they do, they just don’t earn from it – which is what happens in any MLM company if you as an affiliate don’t make sales.
If Herbalife weren’t full of shit, they’d have established a preferred customer option years ago. Instead they hide in the grey and claim all affiliates who don’t earn anything are just there for the affiliate discount.
Instead everyone signs up as an affiliate and muddies the waters – which is exactly what Herbalife intend.
Herbalife is organized like this:
– – – – – – – – – – – – – – – –
The company itself
Management
– – – – – – – – – – – – – – – –
Top level organizers
– – – – – – – – – – – – – – – –
High level participants
Medium level participants
Low level participants
– – – – – – – – – – – – – – – –
42% discount customers
35% discount customers
25% discount customers
– – – – – – – – – – – – – – – –
External consumers
– – – – – – – – – – – – – – – –
EXPLAINED IN MORE DETAILS
* Herbalife itself is the organizer of a “system” where qualified people can build relatively independent sales organizations / pyramid schemes.
Herbalife may then be the co-organizer of multiple independent pyramid schemes, but it will not necessarily be a pyramid scheme itself.
– – – – Pyramid schemes / sales organizations – – – –
* The top level organizers will usually run their own “business inside the business”, e.g. selling success tools to people in their own downline.
Some of those “internal organizations” would qualify as pyramid schemes, only partly organized by Herbalife. Shawn Dahl had his own organization, Anthony Powell had another one.
* The high/medium/low level participants will earn compensation both from Herbalife’s compensation plan and from selling success tools.
– – – – – – – Feeder programs – – – – – – – – –
* The 42%, 35% and 25% distributors participate in independent “feeder programs”. They are not being compensated by Herbalife (other than some insignificant bonuses).
– – – – – – – – – – – – – – – –
External consumers (if any) will be plain and simple consumers.
They don’t have the right to earn from it either. They have only bought the right to buy discounted products.
Say what? If they take retail orders or recruit affiliates who purchase products, they get paid.
Herbalife never actually implemented a true preferred customer class.
well, something happened and the FBI are investigating. this is from NY post [not michelle celarier!]:
Herbalife never actually implemented a true preferred customer class—-oz
oz, you’re being a perfectionist.
the law does not require herbalife to have a ‘preferred customer class’. there is no such ‘classification’ as per case law.
so this cannot be a basis to shut down, or even fine herbalife.
in some posts on SA, KT also encouraged MLM’s to have a preferred customer class for ‘clarity’. maybe if you all make some noise about it, the serious players will adopt this method.
but currently, ‘preferred class’ is just an idealistic expectation, and not a legal requirement.
Who said anything about the law?
If you want to claim the majority of your affiliates are just there for the discount, create a preferred customer class and separate your retail customers from your affiliates.
This is demonstrable retail activity and will only serve to back up Herbalife’s currently baseless claim.
Yet the company, after announcing it would do this, doesn’t.
Why?
Because they’re full of shit and their affiliates joined for the income opportunity. They spent large amounts of money to qualify for commissions and get paid when they recruit others who do the same.
Those that don’t recruit don’t get paid, but that doesn’t make them any less participants in the income opportunity (they’re signed up as affiliates).
No, actually, the FBI is investigating
1) IF something happened
2) IF that something was illegal
Big difference
Who said anything about the law?—oz
well, if you’re expecting the FTC to act , then you’ll have to depend on the law, because FTC is bound by law, and not personal opinion.
Those that don’t recruit don’t get paid, but that doesn’t make them any less participants in the income opportunity (they’re signed up as affiliates)—oz
rephrase: they are signed up as affiliates ‘for discounts’.
those last two words are very important, and make the entire sentence legally acceptable.
similarly the FTC is investigating herbalife to check:
1) IF something happened
2) IF that something was illegal
so herbalife/ackman both innocent, until proven guilty. fair enough?
Cut it out with the misdirection.
Herbalife being full of shit about their retail activity has nothing to do with preferred customer classes being required by law.
Standby for every pyramid scheme operating today to hide behind this claim…
There’s a reason you need retail activity, it’s to separate you from product-based pyramid schemes.
Herbalife by all accounts operate and have been operating as a product-based pyramid scheme for some time now.
This is further evidenced by their refusal to separate retail customers from their affiliates and then publicly make baseless claims based on this decision.
it’s very difficult for MLM’s to get people to join with a kit, and then buy products, for personal use, without being on the comp plan. can a ceracoat which claims to have bombastic products do it?
can that company [i forget the name] selling all those hifi bags and watches, do it? no sir, they all need to put mostly all reps on autoship, to survive.
having a wide base of only consuming affiliates, is a ‘feat’ to achieve.
Again with the misdirection…
That’s not what we’re talking about here.
Preferred customers sign up for product autoship and cannot earn commissions.
Herbalife sign up affiliates, they purchase large amounts of product to qualify for commissions (so they’re upline gets paid) and then set out trying to recruit others who do the same.
Those that can’t recruit, Herbalife claim are just there for the product discount.
This is currently a baseless claim, with revenue on paper from these affiliates sourced naturally from affiliates (non-retail revenue).
If Herbalife were serious about proving their claim they’d set up a preferred customer class (like they said they would). But they backed down on that promise.
Why? Because they’re full of shit and know it.
If they created a preferred customer class, an insignificant token amount of customers would sign up, leaving Herbalife unable to hide in the grey anymore.
Instead we now have regulators pulling apart their business model and revenue, with the end conclusion likely to be the same: Herbalife has insignificant retail activity taking place and, by design, do their best to hide this fact.
Can’t be that hard. Every product-based pyramid scheme manages it.
yes, and the courts appear to have no problem with that.
(Ozedit: misdirection waffle removed.)
Of the countless scam lawsuits we’ve covered here over the years, every single one can be attributed to a lack of retail activity.
Courts most certainly have a problem with a lack of significant retail activity taking place in MLM opportunities.
You show me one product-based pyramid scheme that has won a legal battle in the US and I’ll happily revise my position.
lets wait for the herbalife/FTC result. no legal battle required 🙂
uh oh
just in case LRM misreads post#63 let me clarify.
oz thinks herbalife is a product based pyramid scheme.
i think it’s not.
the FTC investigation will show us whether herbalife is a product based pyramid[PBP] or not. if herbalife is let off with a settlement and fines, we know it’s not a PBP, because a PBP will never be let off.
if the FTC takes herbalife to court, it means they are quite convinced it’s a PBP, and then we can wait for the court to decide.
I identified those low level distributors relatively correctly in post #49.
From the Burnlounge appeal:
Those low level distributors may meet the criteria for Prong 1, but they will most likely fail to meet Prong 2 (“without which it can’t be a pyramid scheme” for those distributors).
correct.
further, even if low level herbalife distributors meet the criteria for prong 1, we have to remember that the ‘kits’ they buy are ‘refundable’ and ‘non commissionable’.
prong 2, is a criteria which is easily met by product based pyramid schemes, because distributors have to either buy products at joining [burnlounge], or have compulsory autoship [TLC], to receive commissions.
both the initial buying of products, and the autoship in PBP, are commissionable.
FTC’s point of view (from the Burnlounge decision):
It means they can’t focus solely on internal vs. external consumption. It will be one of the factors to analyse, but not the only one.
For pyramiding. Far less attention is given to income derived from internal consumption than income from business registrations.
This is what puts companies like FHTM and Dubli at risk
(Ozedit: This is not the place for conspiracy theories.)
There’s nothing that will prevent autoship customers from reselling products to other consumers? 🙂
Herbalife sign up affiliates at a low level, selling e.g. a $79.95 “starter kit”. Those distributors cannot earn commissions.
25% discount: Register as a distributor, buy a starter kit.
35% discount: Make a one time (yearly) 500 PV purchase
42% discount: A higher amount, one time (yearly)
50% discount: Make a one time 4,000 PV purchase.
The 50% discount level is the “Supervisor” level. They have the right to earn recruitment based commission from the compensation plan. They will only earn it from the recruitment / upgrade of other Supervisors, and from monthly purchases made by Supervisors.
Herbalife affiliates buying thousands of dollars to qualify for commissions, who then recruit affiliates who also buy thousands of dollars of product to qualify for commissions…
Yeah, where is anything being sold to ultimate users again?
Ultimate users = retail. Giving the product away isn’t good enough, you need to be making retail sales.
Herbalife affiliates purchasing product to qualify for commissions when they recruit affiliates who do the same clearly satisfies both prongs.
The motive is key. Nobody drops thousands of dollars on Herbalife products without the attached business opportunity.
This is provable via common-sense, as well as analyzing how many non-affiliates put in orders for thousands of products versus affiliates who do the same.
What do you think regulators are trying to piece together? Herbalife’s record-keeping is appalling, so no doubt it’s a monumental task to sort through the revenue data they’ve requested.
there are only some 30% distributors at this level with a churn of around 50% [in herbalife].
courts recognize that in MLM, in is very difficult to keep high levels of distributors, permanently performing at these levels. hence courts recognize the need for MLM to ‘recruit’.
That’s not retail, that’s reselling.
Reselling of product is still affiliate revenue. Otherwise you’d have all product-based pyramid schemes claiming their affiliates resell their products.
Naturally no records are required to be kept, so how do you even begin to prove that either way?
You don’t. Affiliate purchases are affiliate purchases and retail sales are retail sales.
What affiliates do with products after they’ve purchased them is irrelevant.
The analogy I use whenever this comes up in reviews is that, if I walk into a McDonalds and purchase a Big Mac for $2, then sell Big Mac on eBay for $100,000 – McDonald’s didn’t just make a $100,000 retail sale. They still only sold a $2 hamburger.
Granted in the above analogy it’s a retail sale, but the point is their sale to me is what matters. In MLM it’s who purchases from the company, that being the affiliate in this particular context.
well, approx 70% of affiliates don’t do that. they join via a cheap refundable kit, and stay low level, with only a few going to supervisor level, which requires buying product to earn commissions. most others try a few products, and bow out.
Can they or can’t they earn commissions by recruiting other affiliates who purchase products?
They will most likely look at the general harmfulness to consumers. There’s no need for a regulator or a court to stop harmless activity.
The MLM “industry” itself will focus on the recruitment process, and see that as illegal if people are being paid directly from recruitment. So they will look for indirect solutions.
Gerald Nehra will typically focus on “commissions from the movement of products, rather than from the movement of money”. He will try to match that idea.
All those 3 ideas may have some relevance. They can be the correct ideas in some scenarios.
1] they earn nothing on recruitment
2] only If the recruited person buys a product, will the recruiter, make a commission
3] there is still no force on the recruiter, to buy any required amounts of inventory.
4] so according to the first prong, they have bought the right for a small refundable amount, to sell the product, but it still doesn’t meet the second prong, of forced purchasing of products to earn commissions.
this is my initial answer, i may need to polish it with some more study.
And they recruit affiliates who do the same, who recruit affiliates who do the same. And nobody makes any retail sales.
Just like any other product-based pyramid scheme.
Bear in mind, forced purchases can be demonstrated by a lack of retail activity taking place. In that, in order to earn commissions, an affiliate is forced to recruit affiliates who purchase product (on the promise that they too can earn commissions by doing the same) because retail is not viable (as evidenced by a a lack of significant retail activity).
Like I said,
Enough with the excuses.
Not being able to recruit != preferred customer. Herbalife refuse to set up an actual preferred customer class and instead try to bullshit everyone by claiming all their affiliates who don’t earn anything are preferred customers.
They’re full of crap.
take away the affiliate commissions and make them rely on actual product sales like the rest of the real world and watch what happens. I think you’d see many tell-all stories. lol
distributors can recruit as many distributors as they like, on the purchase of non commissionable refundable kits.
some may never buy a product, some may buy a few, some many. a fraction will hang around with the company, and only a fraction of those, will go on to supervisor level.
these behaviors do not satisfy the second prong of the koscot test.
herbalife has never used the term ‘preferred customer’ in any press release. so, there is no question of them claiming that affiliates who don’t earn anything are ‘preferred customers’.
herbalife calls them discount ‘members’. norways post#68 may throw some light on why herbalife uses this terminology.
hahaha. take away sales commissions from ANY product, and watch how Well it sell in the real world. ‘You’ pay for sales costs and advertisement. OK?
They can also eat pineapple, breathe air and get haircuts too.
The issue is everybody earning on recruitment of new affiliates with little to no retail activity taking place.
This, by way of affiliates earning commissions on the recruitment of new affilaites (defacto evidenced by a lack of significant retail activity), satisfies any and all prongs of any test.
Herbalife claim affiliates who don’t earn anything are just signed up for product discounts.
This is exactly what a preferred customer class is for. I don’t care what Herbalife call them, preferred customers is exactly what they describe.
Yet they won’t set up an actual preferred customer class, because then they can’t run around lying about their affiliates.
Stop being a slippery snake, leave that to Herbalife’s PR dept.
according to which law? (Ozedit: The law of common-sense. Herp derp.)
It’s probably easier to see it from the opposite side.
* Recruiting people into a $2,500 business opportunity can be rather difficult.
* A $2,500 business opportunity won’t attract the right type of people. Herbalife want consumers to join it and buy small or huge amounts of products. It doesn’t really want income opportunity seekers to be attracted.
– – – – –
* A $39.95 or $79.95 vague opportunity can be much easier to sell to consumers. Many consumers THINK like that, i.e. “Heck, it’s only $39.95. I can afford it, so why shouldn’t I try it?”
* It will give Herbalife a chance to introduce its own “Success manual”, to show the consumers how easy it can be to make a substantial residual income after some months or a couple of years. “To become something”.
From there, it’s a sales process. Some consumers will drop out rather immediately. Some will try some products. Some will upgrade to a higher discount / higher position. Some will go “all in” and burn substantial amounts of money on Herbalife products.
But low level distributors don’t do that.
They don’t purchase products to get the right to earn recruitment commission. 25% of them may upgrade to that level and do it, but the others won’t.
Before people have upgraded to become Supervisors then they’re not really participants either. That’s why I divided it into “recruitment / sales organization” and “feeder program”.
and that’s different from any real business or even affiliates thinking they have their own business and doing the same how? You seem not to have a grasp on how real business works.
I looked at the 2013 Herbalife IDS in another thread.
NOLINK://behindmlm.com/companies/herbalife/herbalife-wins-belgian-pyramid-scheme-appeal/#comment-305125
– – – – – – – – SL Sales Leaders – – – – – – – –
116,600 SL total
71,000 SL with downline
45,000 SL without downline
– – – – – – – – NSL Non Sales Leaders – – – – – –
408,000 NSL total
363,000 NSL without downline
45,000 NSL with downline
I can see one clear reason for why Herbalife prefer to call the NSL “distributors” rather than “preferred customers”. It makes the statistics look much nicer, and makes it look easier to recruit a downline.
It will make it look like more people are “successful recruiters”.
Can you imagine a hotel banquet room filled with people thinking they are there for a “business opportunity” to quit their day J.O.B. only to be told later it’s a recruitment drive for sales people to retail weight loss shakes?
The same people were then told they would be required to pay for that privilege, there would be no territories, wages, salaries, or health insurance. LOL
@M_Norway
How do you know? For all you know “low level distributors” are just testing the waters, or don’t have enough money to go “all in”.
They can still recruit new affiliates and earn commissions so of course they are participants.
Anyone who signs an affiliate contract is a participant, whether they actually earn anything or not.
when affiliates earn no commission on recruitment, but only on unforced product purchase, without any need for themselves to carry any inventory, it does not satisfy the second prong of the koscot test.
i’m sorry, but this is the law. if the FTC takes herbalife to court, maybe the court will come to fresh conclusions, and some new case law will be generated. pending that….
anyone who signs an affiliate contract is a member, who can purchase discounted products,for consumption or retail, and who can over time choose to become a regular PV performer/purchaser[supervisor].
in both the settlements of herbalife in california, this is the idea agreed upon by the parties, and the court has stamped the deal. in the dana bostick case, the final stamping is pending, but the agreement hinges around the same idea.
first of all i could not grasp what you are saying?
Standby for every product-based pyramid scheme claiming their affiliates aren’t required to purchase anything…
Look, you can weasel around it just as well as Herbalife PR dept, fact of the matter is if nobody is making money in Herbalife without recruitment of affiliates who purchase product, then it’s a product-based pyramid scheme.
Call them whatever you want. They are affiliates with access to the compensation plan because they signed an affiliate agreement.
I’m not interested in pseudo-compliance bullshit. Never have been.
As for law, show me one product-based pyramid scheme that has won a legal battle in the US and I’ll revise my position.
Till then, weasel over something else.
well, herbalife wont be that case, because no one is taking it to court.
then you could say the FTC weaseled around it.
So in addition to slippery weaseling, we’re now baselessly predicting the future too.
Riiiiiiiiiiight… Spam bin mode activated.
Fact, Amway survived worse regulatory scrutiny back in the days. I bet HLF survives.
Amway had demonstratable retail sales…
Same as HLF. No deference.
I was in Amway and because I could not recruit, I made next to nothing even after spending thousands going to meetings and buying tapes.
Hahahaha. Yeah, no worries chief.
Herbalife go out of their way to muddy the waters and not track retail sales.
That’s why you’ve now got regulators going over their business working out exactly how and from where money flows in and how and why it’s paid out.
Hint: It’s got nothing to do with retail sales.
PS. Don’t waste both our time trying to turn this into an Amway vs. Herbalife discussion. That’ll get marked as derailment spam.
From the Pershing Square presentation, e.g. page 70-73, but mentioned directly or indirectly in many other pages.
The first level where people start to earn recruitment based commission is Supervisor (Sales Leader).
“Testing the waters, etc.” isn’t very relevant. The question was about whether they could earn recruitment based commission or if they only could earn discount based profit from some random sales.
If the majority of affiliates below Supervisor are earning commissions from purchases affiliates they’ve recruited have made, then that’s defacto recruitment commissions.
Bill Ackman has been down this road before, and quite honestly you have to admit that even if you don’t like his tactics, he’s never been substantially wrong, either.
When he shorted MBIA he did a lot of things just like he is doing now with Herbalife.
He issued public reports, he got reporters involved and on his side, he made public every little thing he found wrong, he virtually dogged every body capable of insetigating MBIA including the New York Insurance regulators, the SEC, the FTC and anyone else he could get on the phone.
During all of this he was also investigated by many of them, notably the SEC and the FBI for stock manipulation.
In the end, no one ever showed anything Ackman said was untruthful or not backed up by facts, and of course in the end, MBIA went bankrupt and pretty well screwed up the municpal bond market for quite a while.
But in the end, Ackman was right, whether anyone wanted to hear it or not, whether anyone got hurt or not.
Oh, and the FBI did something it almost never does. It formally apologized to Ackman by issuing a letter that it had concluded its investigation of him and found no wrongdoing on his part.
Go ahead and bet against Ackman, a lot of people have lost a lot of money by doing so in the past, love him or hate him (and I love the guy) he’s not wrong very often.
Good comment Gregg, Bill Ackman brought down a much bigger fish than HLF, in MBIA. He knows how to cover the bases.
It took years for MBIA to go down, and it will take time for HLF to go down.
Cheers to Bill Ackman for sticking to his guns. There will not be any wrongdoing found on his part.
I have claimed that he had a too vague case, the same thing I’m claiming in this thread. He focused on the wrong problem, or he didn’t describe the problem correctly enough.
He could have been successful if he had focused on Shawn Dahl’s “Income From Home”, or if he had focused on Anthony Powell, and if he then had identified Herbalife’s role as a main organizer for multiple pyramid schemes (or some similar role).
He focused on them, but too late. He first started to focus on them in late 2013, long after they had left Herbalife. It’s much easier to identify smaller pyramid schemes.
A $1 billion bet should have been a short time strategy. As a long time strategy (more than a few months), it will draw attention away from the real problem. It will look more like a stock market war than a consumer problem.
So, if the FTC or some other agency brings an action, it will be a political prosecution? Funny. That’s what the HYIP scammers say just about every time the government shutters a “program.”
Herbalife isn’t an HYIP. But if a pyramid defense is needed, I doubt a defense of “political prosecution” would be an effective one, given the experience of the HYIPers.
Ackman is hardly a “David.” In any event, the Herbalife “Goliath” can sue him if it so chooses. If it happens, it won’t be bean bag — from either side.
Under your current construction, however, he’ll get the most public support. That’s because a giant swordsman with a shield will be trying to crush a lightly armed opponent. Public sympathies will flow to the underdog you created.
You have tried to marginalize Ackman through your usual lilting condescension. Now, as a means of marginalizing LULAC, it seems you want to rub on it some of the stink you perceive to be glued to Ackman.
Even though there likely is disagreement within the overall LULAC organization (and Latino community) about whether Herbalife is a good thing or a bad thing, Herbalife will be reviled if it follows this lead.
Latinos carrying signs and shouting at each other across the street or through protest barricades wouldn’t be a good political optic for Herbalife, especially given LULAC’s special place in U.S. history.
Some Latinos will tell you that respect for them began on Nov. 21, 1963. So, what’s in a date?
On the evening of Nov. 21, 1963, a husband and wife walked into a crowded hall at the Rice Hotel in Houston. They were greeted warmly.
“My wife and I are very proud to come to this meeting,” the husband said. “This organization has done a good deal for this state, and for our country.”
After delivering his remarks, he introduced his wife to the crowd and asked her to say a few words.
The audience was enthralled. It wasn’t so much what she said; it was how she said it.
Historic events that took place the next day temporarily crowded out the history made the night before. You see, this husband and wife left the hall and traveled to another city, where he had other speaking engagements.
Here’s the lede from the New York Times’ story by Tom Wicker on what happened on Nov. 22, 1963, the day after history was made in Houston.
President Kennedy and the First Lady had spent the last evening of their lives together with members of LULAC Council 60 in Houston. Mrs. Kennedy had spoken in Spanish.
These moments in Houston marked a turning point in U.S. history: A community thirsting for validation and denied it for far too long finally had received it. Electoral politics changed forever on Nov. 21, 1963.
Watch how quickly the proHerbalife and antiHerbalife Latino communities will unify if they see LULAC getting kicked around too much.
PPBlog
80% of those affiliates may be completely inactive, e.g. people who signed up as distributors many years ago, and have been downgraded to 25% discount when they decided to quit as active distributors.
I have looked at some details …
THE DISCOUNT LEVELS
– – – – – – – – – – – – – – – –
25% discount. One time purchase of an IBP. No renewal.
– – – – – – – – – – – – – – – –
35% discount. One time 500 VP purchase. Yearly renewal.
– – – – – – – – – – – – – – – –
42% discount. One time 1,000 VP purchase. Yearly renewal.
– – – – – – – – – – – – – – – –
50% discount. One time 4,000 VP purchase. Yearly renewal.
– – – – – – – – – – – – – – – –
THE 25% DISTRIBUTORS
Those 25% distributors don’t have any minimum purchase requirements. They can be completely inactive for many years, but will still be listed as “distributors” (unless they or Herbalife terminate the contracts).
It will make Herbalife’s base of distributors look much larger than it really is. It will make Herbalife look more stable and more successful as a company. It will help to disguise pyramid scheme issues.
It will make it look like the company is growing steadily in local markets. It will make it look like fewer people are quitting Herbalife each year (they only change positions down to 25%). It will make Herbalife look more like a product based company with many loyal consumers (internal ones).
It will make it look like many more people have downlines. It will make it look like the consumption of products per average member is much lower (it may help to disguise “qualifying purchases”).
It will make leaders look more successful than they really are (with huge downlines).
The flip side:
It will make some statistics look worse, e.g. much lower average income per distributor.
It will attract some troublesome questions about retail sale and external customers.
it’s extremely supportive of you to draw attention to ackmans ‘big win’ in MBIA. there are some who believe that the MBIA win, was largely caused by the stock market crash in 2008.
like any stock trader, and company takeover specialist, ackman has had his hits and misses. more misses in fact.
his first company gotham, went down in flames amidst losses, litigation and loss of reputation. he had to to withdraw from his huge positions in target and JC penny, incurring big losses.
so, no one can say with complete confidence, that his herbalife bet is going to be a winner. his break even is at 32$, he is still in the red, and paying heavily to maintain his short options [or whatever].
let’s not paint a rosy picture, just because we ‘love’ him. he is human and completely fallible, some may say a bit more fallible, because he is believed to have an ego issue.
i don’t like him, he looks ‘lizardy’ to me. full of himself, wouldn’t trust him.
i have a different take on this issue;
1] when ackman started his herbalife campaign in 2012, the omnitrition dicta was the generally accepted standing definition of the koscot test. this was strongly in ackmans favor.
2] the burnlounge appeal order reversed the omninitrition dicta, and gave a new definition to the koscot test. i can bet everyone’s ass, that had the burnlounge appeal order happened in 2012, ackman would not have shorted the herbalife stock.
3] the current status of the law, does not support any legal action against herbalife.
4] the court demands from MLM are
– commissions only on sales of products to consumers
– minimum inventory loading
– refundable stuff
– products at fair value
– no misrepresentation of income opportunity
beyond this, the court don’t poke its nose. it is not concerned with defacto sales or frigfacto blabber, unless there is inventory loading.
ps; i am not a herbalife lackey, but mostly a law lackey.
it could be xyz company, if the law doesn’t fit, in my opinion, i’ll just say it. and i wont be a singular idiot opinion either, because this viewpoint is shared by many, inside and outside the MLM industry.
you have completely misinterpreted my statement.
both sides of this fight, ie ackman and herbalife, took their fight public.
both sides are buying press, using cronyism, and ‘abducting’ senators, govt advisors, retd govt officials, economists and even a whole community [hispanics] to their camp. money is being spilled like water. it is a test of wit and clout. whoever talks louder wins.
it’s all politics. whoever wins is the knight in shining armor.
if ackman talks louder, herbalife can be harassed to death even without taking it to court [since current law disfavors litigation]. if herbalife talks louder, ackman will go through some difficult years.
because the law appears to be in favor of herbalife currently, and because they appear to have more ‘clout’, i’m seeing a herbalife win, on the current rung.
Anjali, there are multiple regulatory investigations open into Herbalife. All that crap you’re going on about has no bearing on anything at this point.
Any regulatory investigation is going to be based on the flow of money in and out of Herbalife, as per their business model (compensation plan).
Herbalife is not some isolated magic investigation with a unique set of analysis points. There is no “too big to fail” in MLM regulation.
but the truth is that this fight has gotten politicized, and created a rift in the hispanic community. LULAC is organized in the form of ‘chapters’ all over the US, with some chapters siding with ackman, and some with herbalife.
it’s sad, it’s not good for the community, i can agree with you about that. but, society is a very political animal.
*sigh* The “fight” is irrelevant. You can get caught up in the theatrics or accept Herbalife has a shonky business model and is currently being investigated by several regulatory agencies.
I tend to objectively focus squarely on that. The only I reason I wrote this article is because now the FBI are also investigating Herbalife (or rather claims made about it, which sounds like they’re intel-gathering for another agency).
before i get *sighed* upon, i would like to clarify that i was only ‘responding’ not ‘initiating’, and hence should not be *sighed* upon 🙂
People have no idea of what a “Omnitrition dicta” is, and how it will affect the global temperature and the melting of polar ice, and then eventually lead to a result in the Herbalife case.
Omnitrition seems to still be the case law? I don’t think the appellate court changed anything in that, but it clarified a couple of interpretations.
It clarified the expression “unrelated to the sale of the product to ultimate users”. And then it clarified something about “ultimate users”.
True,
but, if she says it with an authoritative air, then perhaps at least a few people will think she knows what she’s talking about and give her the attention she craves.
Others, on the other hand, will prefer to continue to deal with the facts.
duh. how can a ninth circuit court of appeals ‘dicta’ in the omnitition vs webster case, have ANY effect on polar ice caps?? and global temperature!! extreme creativity, norway!
on the other hand, this ‘dicta’ held the MLM industry ‘hostage’ for approx 20 years, before the same ninth circuit court of appeals, revised/reversed this dicta, and redefined the second prong of the koscot test.
1] dicta meaning: Opinions of a judge that do not embody the resolution or determination of the specific case before the court. Expressions in a court’s opinion that go beyond the facts before the court and therefore are individual views of the author of the opinion and not binding in subsequent cases as legal precedent.
2] omnitrition/webster dicta [1990’s] : the district court found in favor of the MLM company omnitrition, ie that it was not a pyramid scheme, and awarded it summary judgment.
webster [plaintiff] appealed in the ninth circuit, and the appeals court reversed the summary judgment,and sent the case back to the district court for holding of a trial, and made a ‘dicta’ comment that: for koscot to have any teeth, ultimate users should be outside the compensation plan.
ie, compensation could be paid only on ‘pure retail’. compensation paid on self consumption, was not legal profit.
3] burnlounge appeal reversal[2013]: the court specifically rejected the FTC contention that purchases for personal use by distributors should not be counted as “sales to ultimate users.” hence the dicta stood reversed.
this further means that it is okay, for distributors to join for the purpose of becoming discount buyers and for their own personal use of products.
hence the burnlounge appeal order, gave a fresh lease of life to MLM. without it, herbalife would be dead meat and stinking, by now.
the way we’ve set ourselves up, the law is the ‘facts’ and the rest is all ‘opinions’ and ‘contentions’.
of course there are different ways for the ‘law’ to be interpreted, but the court is the final adjudicator of that, and not LRM’s silliness.
@anjali,
I encourage you to do three things:
* Read the list of 9,000+ alleged Zeek “winners” as published by the receiver. It is not broken down by specific demographics, but it is broken down by names.
A disproportionate share of those names appear to be Latino or Asian or other U.S. minorities, suggesting specific targeting. Mind you, this is the “winners'” list.
It is my belief those winners likely targeted people within their own immediately spear of influence, the so-called “warm market” of family, friends and neighbors.
Result: an estimated 800,000 victims.
* Read Docs 592 and 593 from the TelexFree trustee. Skim the countries of the individual creditors, but pay close attention to the names in the U.S.
You might just get the idea that the same thing that happened in Zeek happened in TelexFree: members of minority communities and those within their immediate sphere of influence were mowed down.
Result: hundreds of thousands to more than 1 million victims (est.).
* Think about Herbalife’s so-called Nutrition Clubs and the demographic positioning of those clubs.
View Ackman’s pictures of these clubs. Recognize that Herbalife product has to get to those clubs, that someone has to prepare it for presentation if not consumption, and that the shipments add to Herbalife’s bottom line.
These folks are not franchisees; they are distributors presenting or selling to people in their immediate vicinity.
Members of that audience may open their own nutrition clubs and do the same thing in the same market, thus potentially splintering that market even more.
Whether Herbalife likes it or not, these nutrition clubs strike some people as a modern form of indentured servitude or something that takes predatory advantage of a free labor force.
The PR problem for Herbalife is that it looks as though the company is taking advantage of people who could have been characters in “The Grapes of Wrath.”
Within Herbalife, the average participant may have a Latino/Hispanic surname, and be the functional equivalent of a member of the Tom Joad family in the 1930’s Steinbeck novel.
The appearance alone should be a source of great introspection in the MLM community BEFORE the pyramid issues are even analyzed.
PPBlog
uh, no.
the burnlounge appeal order from the ninth circuit court of appeals, is currently the standing order, when it comes to defining koscot.
hello burnlounge, ta ta omnitrition.
i am All for introspection and improvement.
this, however has nothing to do with ‘Legality’.
morality is a very personal and subjective thing. we cannot inflict our own ideas of morality on the public at large.
if something in society is egregiously immoral, it finds death naturally, by rejection. if MLM is grossly immoral, congress will pass law, ill-legalizing it.
fitzpatrick & party were making some noise on seekingalpha about petitioning congress, but that idea died in infancy. didn’t hear about it again.
Not this dopey shit again…
Stop misrepresenting the BurnLounge appeal. If you don’t have retail you can’t prove the existence of end-users.
This is not up for discussion. You want to argue nonsense, do it somewhere else.
I pointed out in post #106 that a huge number of “25% distributors” could be completely inactive.
From Herbalife 2013 IDS (USA):
Non-Sales Leaders With a Downline 45,076
“Eligible members” is probably about “they upgraded to or renewed their 35% or 42% discount rate” = they were active in 2013 and made at least one 500 VP purchase directly from Herbalife.
That’s 1.2% of the total number of Non Sales Leaders.
5,037 eligible members is only 11%-12% of 45,076 NSL with downlines.
* 88% didn’t renew or upgrade discount rate in 2013.
* Only 2,929 received any sales commission (avg. $105).
There’s simply too little activity among Non Sales Leaders. Most of those members seemed to be completely inactive. Even people with downlines seemed to be completely inactive in 2013.
Herbalife’s “NSL customer base” is probably filled with inactive people. My estimate is that >83% of the NSL members were completely inactive in 2013 (neither promoters nor consumers of Herbalife products).
I see. You were talking about dictum, the Court’s case specific opinion, not really necessary for the conclusion.
I don’t think the Ninth Circuit Court reversed anything in the Burnlounge decision. It clarified some misunderstandings from both parties, both FTC and defendant Burnlounge.
“Misunderstandings” are about the IDEAS people have about something, e.g. MLM attorneys can have had the idea of “being kept hostage” for 20 years.
It doesn’t mean the idea is correct. It may just as often be that they have focused on the wrong idea.
uh, no.
i thought up the phrase about “being kept hostage” all by myself. good, no? 🙂
anyway you will have to talk about this, all by yourself, if one sided views, make any logical sense. it’s just law, it’s not world war III, so i cannot understand the resistance to views.
MLM lawyers are not dorks, they understand MLM law. which is why they can thinkup some some great ‘pseudo compliance’ 🙂 . they know the law, and know how to interpret it.
how the FTC has interpreted the burnlounge appeal is the pending question, and i’m begging them to tell us in 2015 itself, with their decision on herbalife. if they drag it to 2016, i may cry. enough.
I think that Hebalife’s real problem is going to be falling profits and being unable to dress up their public filings enough to maintain the stock price, eventually leading to a plain old bankruptcy, all before the various investigations get around to driving the stake into the heart.
@ greg evans
herbalife has issued 1 billion worth of convertible bonds, maturing in 2019 [it expects to be around!]:
oops, such high share purchase, is going to put acky in a Fix! how will he ‘settle’ his shorts!
the financial institutions who are purchasing these bonds are Bank of America, Merrill Lynch, Credit Suisse, HSBC and Morgan Stanley.
just a passing thought, would merill lynch etc, involve itself, if it thought the company was coming under the FTC hammer?
Why don’t you tell the complete story, Anjali ???
Herbalife issued those bonds to finance a buyback to head off Pershing / Ackman
The bond price hasn’t fallen as much as the share price, but they are currently yielding about 10% to their 2019 maturity
Herbalife has to pay back the money it raised from the bonds in 2019, yet the stock it purchased is now worth less than half of what it paid.
No conspiracy theory needed
The main point was about misunderstood ideas, not about whose ideas (real attorneys’ ideas, or ideas belonging to some type of follower). So I covered your misunderstandings too.
The Burnlounge decision only corrected some common misunderstandings, e.g. the idea that only sale to external customers would qualify as retail sale. It didn’t reverse anything.
That’s why I pointed out that the effect on permafrost would be de minimis. It wouldn’t cause any new giant sinkholes to appear in the Siberian tundra that eventually would affect Herbalife’s chances in court.
yeah, lets nit pick with wordsmithing!
(Ozedit: Blatantly misleading and incorrect information removed. Do not repost.)
of course. that’s no secret. ever since ackman shorted the stock, herbalife has promised the ‘mother of all short squeezes’.
of course all companies have to pay back all debt. there’s nothing new in that. they do business and repay debt.
there is no conspiracy theory at all. i agree with you. it’s all on paper, and underwritten and filed with the SEC and audited and ..what conspiracy??
It’s easy,
if you’re going to participate in a discussion, present all the facts, not only those you think will advance your argument.
An error by omission is still an error.
^^this means in 2019, herbalife will pay cash against the bonds or convert them to stock, for investors. they need money now, for share repurchase, and are raising it through a convertible bond debt offering. go read up for more info. i am not a spoon feeding department.
^^^this means ‘mother of all short squeezes’.
here is one more fact, herbalife will buy a lot of stock at the current value of around 32$/34$. they are getting their own stock, dirt cheap.
at a later date if the stock reaches the 70$/80$ range, and acky has been squeezed and dried, they can resell the shares in the market, and repay the current debt they have raised.
Once again with the “ifs” and speculation
What we KNOW without the need for speculation and hypothesis or cut and pasting opinion from bloggers of unknown origins
* Herbalife share price is down
* Herbalife debt is up
* The situation that lead to Ackmans’ attack/s remains the same
* The Herbalife share price has fallen to such a level, Pershing Square is within a dollar or two of “winning” it’s short postion bet.
* Herbalife share prices fell 40+% in 2014
* Herbalifes’ dividend payout is down
* Herbalife says it expects net sales to fall between 6% and 9% in 2015.
hey, how come we missed this case about herbalife?
it seems sometime last year a bunch of share investors of herbalife, filed a class action in california, alleging that herbalife had wrongly claimed to be a legal MLM company, when in fact it was a pyramid scheme.
the suit said that ackman’s revelations in dec, 2012, established that herbalife was a pyramid, and the shares fell, causing loss to the investors.
judge dale fisher, threw out [dismissed] the case, on the basis that ackman had used publicly available information to make his presentation [ie did not ‘reveal’ anything], and that allegations are not conclusions.
further the judge said that SEC or FTC investigations are not proof of guilt, and the stock falling in response to such investigations, does not mean any fraudulence has been proved.
long order! non copiable. enjoy if you want to!
scribd.com/doc/259086999/Order-GRANTING-Defendants-Motion-to-Dismiss-Docket-No-60
Because it’s irrelevant. It probably came up in the comments but it’s not worth writing an article about.
Ackman has access to the same information we do.
Only regulators and Herbalife have access to the data that shows they have no retail activity.
@LRM
of course, herbalife is in a down phase. they are under attack. when the attack is over, they will climb back up. all companies have phases of growth and slow down, due to various reasons. no point crying about it.
the only point you made, which is of any interest is this:
if ackman had any sense, he would cover now.
but he has tied himself up with his ego. he says he will not cover, because the price will go to zero [ie herbalife shut down] and he says he will pursue this to the ‘ends of the earth’. emotional fo…’person’.
Nobody, other than you, “missed it”
The fact people chose to ignore it doesn’t mean it was “missed”
whoa, breaking news!!
blistering barnacles!
businessinsider.in/A-grand-jury-has-been-convened-in-the-Ackman-Herbalife-stock-manipulation-investigation/articleshow/46605041.cms
an article from courant.com is much more informative;
courant.com/news/connecticut/hc-herbalife-federal-stock-investigation-connecticut-william-ackerman-0317-20150317-story.html#page=1
news from 2 hours back:
2paragraphs.com/2015/03/william-ackman-will-face-grand-jury-on-herbalife
I dunno who 2paragraphs are, but here’s another source:
Uh, we don’t know anything about what the grand jury are deciding at this stage.
The person who was subpoenaed cant tell us because grand jury proceedings are conducted in secrecy.
We won’t know anything further until the jury makes its decision. This could be anything (related to Herbalife) based on what information is currently available.
All we know at this point in time is a grand jury are hearing something in New York, where the AG’s office are investigating claims made about Herbalife.
businessinsider.com/a-grand-jury-has-been-convened-in-the-ackman-herbalife-stock-manipulation-investigation-2015-3
where are my posts?
There’s more in the history, I was just going through them reverse-chronologically.
Let me put together an article on this and I’ll go back through the comments after.
right, but i would treat the 2paragraphs report with caution, i cant find that news about ackman before a grand jury, anywhere else, as of now.
Yesterday’s story in the Courant did not report this.
Rather, the story, sourcing a “lawyer familiar with the matter,” reported that a hairdresser in Connecticut “was subpoenaed late last month to appear before a federal grand jury in New York.”
It does seem clear that the subpoena was in the context of an investigation into whether Herbalife’s stock was being manipulated. The target or targets of the probe are unclear.
From Barron’s on March 12, quoting from a Wall Street Journal story that reported federal prosecutors and the FBI are “scrutinizing public statements and allegations relayed to regulators by the array of consultants and activists who have lobbied against Herbalife as well as any connections or potential collaboration between those people and [Ackman’s] Pershing Square.”
Looks to me as though Ackman hired a Connecticut lobbying firm to advance his pyramid-scheme contention. That company, in turn, hired one or more individuals to advance a letter-writing campaign to the AG in Connecticut and regulators in Washington — i.e., recruit victims.
The letters, though, seemed choreographed. One of the asserted victim-recruiters, Christopher Healy, had been “named as an unindicted co-conspirator in the campaign finance case that resulted in former Gov. John G. Rowland’s conviction last year,” the Courant reported.
Based on the local reporting in the Courant, the hairdresser, Israel Alvarez, is or has been Healy’s stylist. Looks as though Alvarez was part of the letter-writing campaign. So were some local pols.
The lobbing firm, Global Strategy, concedes it has spoken to federal prosecutors in Manhattan, but reportedly says it is “clear” Global is not a target.
Ackman said on March 13 that he hired Global Strategy, said he knows subpoenas were issued, noted he has not been subpoenaed and continued to forcefully contend Herbalife is a pyramid scheme and criminal enterprise.
NOLINK://cnbc.com/id/102502745
Preet Bharara is the U.S. Attorney for the Southern District of New York (Manhattan). His office is well-experienced in bringing financial-fraud cases, given that Wall Street is in the district.
The office also has handled cases involving MLM fraud or fraud in which an MLM-style component was involved. These include the David Eduardo Helmut Murcia Guzman case, and the cases against Abdul Tawala Ibn Ali Alishtari and former Canadian clergyman Brian David Anderson.
Murcia was convicted of participating in a conspiracy to launder money for Colombian narcotics traffickers through his DMG Group MLM “program” that targeted the poor in Colombia.
Alishtari, associated with an HYIP known as FEDI, was convicted of financing terror and ripping off FEDI investors.
Anderson, a FEDI pitchman, was convicted for his role in a Ponzi scheme known as Frontier Assets.
One of the interesting things about FEDI is that Alishtari, also known as Michael Mixon, traded on his purported Republican bona fides — rather like AdSurfDaily’s Andy Bowdoin.
ASD was a $119 million Pozi scheme taken down by the U.S. Secret Service in 2008.
PPBlog
right, and from what i was following, preet bharara was the ‘big hope’ of the ackman camp, in that, his investigation, would bring down herbalife.
so, it’s pretty surprising to see that bharara’s office, is in fact, actively seeking indictment of ‘somebody’ in relation to misleading federal agencies and offices, regarding the herbalife business.
this is an unexpected about turn, though i did say in post 2, that the reverse attack on ackman has begun! this is moving pretty fast.
since the news has broken now, one month after alvarez’s grand jury appearance, i think we will have news of an indictment soon. news has ‘a way’ of coming out at the ‘right time’ 🙂
Remind us again, Anjali,
what do they call psychics and fortune tellers in India ??
simple : jyotishi
anything else? you want to know what ‘littleroundman’ is called in hindi?